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Should I File for Bankruptcy Protection now or wait until a later date?

Clients frequently ask that question of Dsouza and Strachan Lawgroup. However, the answer depends upon many factors, and each individual’s legal situation is different; as such, we review the facts on a case-by-case basis.

A bankruptcy filed too early could result in the loss of property, which otherwise might have been retained. A determination needs to be made regarding which Chapter of the bankruptcy code would serve the debtor best. In some cases, it might be more preferable to file a Chapter 13 versus a Chapter 7. It is possible that seeking protection from creditors using the provisions of the federal bankruptcy code will not be the best solution. There are other remedies available instead of filing for bankruptcy protection.

Mortgage Modification or Bankruptcy

A strategy we are finding among some individuals facing foreclosure is to file bankruptcy. Although this can be a good strategy, it can also work against the borrower if done at the wrong time. The timing in filing for bankruptcy protection is critical, as typically, new lenders will not enter into underwriting a mortgage before the bankruptcy is discharged. In addition, in bankruptcy, the promissory note portion of the loan is cancelled, but not the lien.
As such, the borrower loses a negotiating tool. A straight modification may prove to be a better option than bankruptcy in bringing down mortgage payments. A qualified attorney should be consulted before making any decisions regarding bankruptcy or loan modification.

Chapter 7 versus Chapter 13

In determining the type of bankruptcy to file, the debtor will be subject to a “means test.” The test is used to determine if the debts can be paid off (typically a portion of the debts) using a structured repayment plan. Although the filer may want to discharge all their debts using the Chapter 7 provision of the bankruptcy code, they may not be eligible because their income for the past six months has been too high. Everyone’s circumstances are different and unique. It is important to consult an attorney who specializes in the handling of bankruptcies to receive the best advice.

New Debt Coming

If the candidate for bankruptcy knows that new and significant debt is in the near future, it would be wise to hold off on filing. Typically, a Chapter 7 bankruptcy only eliminates the debt you owe as of the filing date. Debts incurred after the filing date would be the debtors responsibility to pay. There are times when a bankruptcy case can be reopened to include debts that were not part of the original filing. However, it can be costly and whether the debts can be discharged will depend upon qualifying circumstances.

Seeking Legal Advice

Consumer debt and laws that protect individuals (and businesses) are complex, vast, and comprehensive. The federal government has Constitutionally established a mechanism, which helps consumers get a fresh start. In addition to federal laws, each state has provisions, which specifies how personal property and assets are treated and protected. Consumers should understand their rights regarding their property. It is to the advantage of all consumers to understand what creditors (including collection agencies) can “say” or “do.”

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