Frequently a person contemplating filing bankruptcy is involved in a situation which is changing as time goes by. For example, perhaps the debtor has recently become unemployed or expects to become unemployed in a few months. Maybe the debtor recently inherited money. Maybe the debtor is the owner of a luxury item like an expensive car, in which there is significant equity. Maybe the debtor is contemplating selling property. Maybe the debtor is about to file for divorce.
All of these situations, and many more, call for careful consideration of the timing of filing bankruptcy. This is because the rights of the debtor and the debtor’s creditors are established based on the date of the filing of the petition.
For example, let’s assume a prospective debtor’s income has significantly dropped during the past three months or so, and the prospects for finding other employment are low. And let’s assume that at his former level of income the debtor would have problems with the means test. Under such circumstances, it may be best for the debtor to wait for a few months before filing, so the means test calculations would be more favorable.
Another example would be that a debtor owns and lives in a single family residence which has no equity. Let’s also assume that the debtor owns income property with significant equity. Under those circumstances, the debtor likely would want to consider moving into the property with the equity before filing bankruptcy. By doing so, the debtor may well be able to invoke homestead protection with respect to that “new” residence. This would protect a significant amount of equity. If there is no equity in the other property, the trustee likely would abandon it back to the debtor.
Another timing question arises when the debtor owes back income taxes. The timing of filing bankruptcy under such circumstances is critical. A prospective filer will want to have a lawyer carefully review, among other things, a “transcript” of the account obtained from the Internal Revenue Service. Only based on the content of the transcript would the lawyer be able to base calculations as to filing deadlines.
With respect to divorce situations, there are many issues which arise. Should both spouses file? If so, should they file before or after filing for divorce? Should they file before or after the divorce becomes final, or the property settlement is entered as an order? How are exemptions like the homestead exemption handled if only one spouse is filing? These questions are just the tip of the iceberg when it comes to the interaction between divorce and bankruptcy.
These and many other timing questions should be brought to an attorney for careful review before filing bankruptcy.