You can avoid financial pitfalls by understanding when—and when not—to file for Chapter 7 bankruptcy, so it makes sense to think about when you should file your case. In this article, you’ll learn about issues that affect whether you should file now or wait, the time you’ll need to wait before wiping out debt in a second Chapter 7, and how to file fast in an emergency.
When You Should File for Chapter 7 Bankruptcy
If you're tired of creditor calls and other collection issues, you likely want to file for bankruptcy now. However, correctly timing your bankruptcy is important to ensure the best possible outcome of your case.
When It’s Best to File Immediately
You know that creditor calls will increase if you fall behind on your bills—and as time passes, those same creditors will use increasingly uncomfortable collection techniques to ensure that they get paid.
Here are a few ways an early filing can help prevent a needless loss of money and property.
Stops litigation. If a creditor sues you, filing for bankruptcy can stop a case in its tracks. It’s best to file before a creditor gets a judgment against you to avoid giving the creditor greater rights to your property. Find out more in Will Filing for Bankruptcy Stop a Civil Lawsuit or Get Rid of a Court Judgment?
Prevents (or stops) a wage garnishment or bank levy. A creditor with a judgment can force your employer to deduct money from your check or require your bank to withdraw funds from your account. You’ll save money by wiping out the debt before such actions occur.
Delays foreclosure. Filing will stop the foreclosure and provide you additional time to stay in your home. However, the relief will be temporary because Chapter 7 bankruptcy isn’t designed to help you keep your home. Chapter 13 can help you catch up on your house payment and stay in the home.
Delays eviction. This chapter can stop an eviction proceeding if the landlord hasn’t obtained a judgment, but as with foreclosures, the relief will likely be temporary. Learn more about bankruptcy and eviction.
How to File Bankruptcy Fast—Online Emergency or Skeleton Filings
If you need to file a quick bankruptcy, you’re in luck. All filings get submitted through an online service that is available around the clock. Using the “emergency filing” or “skeleton filing” process, you can speed up your filing even more.
An emergency filing allows you to complete and file a few forms instead of the entire packet. You’ll have 14 days to file the remaining forms. The bankruptcy court will dismiss your case if you don’t complete your filing within that time.
The official bankruptcy forms you’ll need are:
- Voluntary Petition for Individuals Filing for Bankruptcy (Form 101)
- Your Statement About Your Social Security Numbers (Form B121)
You’ll also need to:
- prepare a list of creditors (your court will require a specific format)
- prove you’ve completed a credit counseling course or a waiver request, and
- pay a filing fee or submit a fee waiver or an installment request.
Other exceptions exist that could help you file for bankruptcy quickly. You can learn more about available help by consulting a knowledgeable bankruptcy attorney.
When It’s Best to Wait
Stress and debt go together—and most people want to file bankruptcy immediately to get out from under this pressure. But in some cases, it pays to wait. In others, it might be the only option.
Multiple Bankruptcy Filings
If you’ve received a bankruptcy debt discharge in the past, you must wait before you can "discharge" or wipe out additional debt. The length of the waiting period will depend on the chapter filed previously. Here are some of the most common waiting periods.
- If you filed for Chapter 7 bankruptcy. You’ll be eligible for another Chapter 7 discharge eight years after the first Chapter 7 filing.
- If you filed for Chapter 13 bankruptcy. You’ll have to wait four years before you’ll be able to receive a Chapter 7 discharge.
If you need relief from aggressive creditors before being entitled to a discharge, you might consider filing for Chapter 13 bankruptcy. Although you’ll pay 100% of your debt, you can do so over three to five years without fear of collection activity, such as a bank account levy or wage garnishment. Essentially, you're forcing the creditor into a payment plan.
Be aware that if the court dismisses bankruptcy within the last 180 days, other rules apply, and you might not be eligible to file immediately. You can learn more about waiting periods in Filing for Bankruptcy More Than Once.
Spending Before Filing Chapter 7—the Look Back Period and Fraud Allegations
Sometimes, people pay bills in a way that isn’t fair to all creditors. Although rare, some people use the bankruptcy system inappropriately by hiding property or running up charge accounts, knowing they intend to discharge the balance. Your creditors and the bankruptcy trustee, the court-appointed official overseeing your case, will look for tell-tale signs of issues in your paperwork.
Here are examples of timing issues you’ll want to consider before you file.
When did you last purchase a luxury item on credit or take a cash advance? If you use credit to make an extravagant, luxury purchase totaling a particular amount within the 90 days preceding bankruptcy, the transaction will be presumed fraudulent. Examples might include charging a vacation, cosmetic surgery, or golf clubs. Your creditor can ask the court to deny the discharge of such debt. The same applies to cash advances totaling a particular amount taken within 70 days of filing.
When did you last pay a bill or transfer assets to someone else? You must disclose any assets you’ve given away or sold within a particular period, as well as payments made to creditors during the “look back” period before filing. The trustee can unwind or undo transactions not made in good faith, such as selling a vehicle to a friend for less than the fair market value or payments that aren’t fair to other creditors. For example, you must report any debt payments made to relatives within the year before your filing. You must also report creditor payments over certain dollar amounts. You’ll find the time periods and current amounts listed on the official Your Statement of Financial Affairs for Individuals Filing for Bankruptcy.
When Timing Issues Are in Conflict
Don’t be surprised if you have multiple issues pulling you in different filing directions. When you should file your bankruptcy case is often a judgment call. For instance, if you receive a wage garnishment notice shortly after taking out a cash advance, you’ll have to decide whether preventing the garnishment by filing for bankruptcy is worth the risk of an allegation of presumptive fraud.
But delaying a filing doesn’t necessarily insulate you from a fraud allegation, and you might decide to pay off the cash advance before filing and take the chance that the trustee will unwind the transaction.
Other complicated situations can present themselves, too. Here are a few examples.
Divorce. If you’re divorcing, it’s often better to file a joint bankruptcy with your spouse and wipe out dischargeable debt before the marriage ends—but your income might be too high to qualify as a married couple. You’ll need to decide whether it’s better to file individually while still married or wait until after the divorce. Learn more about filing for bankruptcy when married.
“Hot” litigation. In most cases, it makes sense to file for bankruptcy before the state court enters a judgment against you. Once you have a state court judgment for fraud against you, you'll have difficulty getting rid of it in bankruptcy court and will likely remain responsible for paying the debt. Without the state fraud judgment, a creditor would need to prove the fraud in a bankruptcy trial before the court would declare the debt nondischargeable. By contrast, most bankruptcy courts will adopt a state court fraud judgment, streamlining the process of declaring the debt nondischargeable.
However, federal court isn't always the right venue for certain issues, and in some instances, you might not want to risk a bankruptcy trial under any circumstances. These decisions can get tricky quickly, and in most cases, you’ll benefit from the counsel of a knowledgeable bankruptcy attorney.
Speak With a Bankruptcy Lawyer
Ultimately, filing a Chapter 7 bankruptcy is a serious step. Once filed, it’s unlikely that the court will let you dismiss the matter. When it comes to timing issues, you won’t go wrong seeking the advice of a seasoned bankruptcy attorney.