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Why now might be the right time to file for bankruptcy

Don't make the common mistake of filing for bankruptcy later than you should

Most people who file for bankruptcy have probably been considering doing so for some time. Generally, people wait longer than necessary to file for bankruptcy, usually hoping that something will change to improve their financial condition. It rarely does.

Unfortunately, it is very difficult to get away from the vicious cycle of debt, high interest rates and minimum payments. This difficulty is a main reason bankruptcy exists.

Is it ever right to wait?

While there is never a bad time to file for bankruptcy protection when you need it, certain circumstances may make waiting a short time appropriate. If you are considering filing for bankruptcy protection and wondering if now is the right time, below are several common instances where delay may be appropriate -- and why they may or may not apply to your situation.

Getting a tax refund

One reason to delay filing for bankruptcy is to get, and spend, your tax refund.

A bankruptcy trustee can attach and use your tax refund to pay off creditors in bankruptcy, if you haven't already received it. Waiting allows you to have use of the refund. However, remember that the bankruptcy court will also examine any debt you have recently paid, as well as items recently purchased. If you are going to spend your tax refund on essentials, such as rent/mortgage, clothing and food, it may make sense to wait. Spending on non-essential items just prior to filing for bankruptcy, however, can actually harm your case. Additionally, if you are planning to spend your tax refund to pay off debt, this is usually not prudent, especially if the debt is dischargeable. More importantly, payment of some debts and not others (known as "preference" payments) just prior to filing bankruptcy may cause the trustee to invalidate your payment and seek a refund from the creditor paid.

Before you make a decision, consult with our office to determine your best course of action.

You are expecting to incur an unavoidable debt in the near future

If you are expecting to make an absolutely necessary but "large" purchase in the future, you may wish to wait to file for bankruptcy so that specific debt can be included in your filing. A good example is a medical expense such as an upcoming surgery. Medical expenses are generally dischargeable in bankruptcy.

Sometimes it makes sense to wait even if you are incurring a debt you do not wish to eliminate. For example, if you need to purchase or lease a vehicle, it may make more sense to do so before filing. This will insure that you have the vehicle you need to get to work or about, create a legitimate monthly expense in your case, and also avoiding the difficulty of trying to qualify for a vehicle payment immediately after you have filed, when most creditors may turn you away.

However, unless you are certain about a specific upcoming debt, as set forth above, the mere possibility of future debt should not be reason to delay. The point of bankruptcy is not just to eliminate debts -- it is to become financially stable in the future.

It is also worth noting that certain large purchases or expenses are very carefully scrutinized by the court. In order to be sure, consult with our office to properly advise you of your options and the best choice for your situation.

You recently lost your job

If you recently lost your job, you should discuss with your attorney whether you want to file Chapter 7 or Chapter 13 bankruptcy protection. In all bankruptcies, the court examines your income from all sources over the previous six months. In such circumstances, waiting to file may help you qualify for a Chapter 7 filing (allowing you to eliminate most of your debts) instead of filing a Chapter 13 (in which you would generally be required to repay some of your debts). However, if and when to file, as well as which type of bankruptcy to file depends greatly on many circumstances.

Hence, if you are unsure of what type of bankruptcy protection you should seek, or when to file, contact an experienced bankruptcy attorney at Mariano & Coiro to discuss your options before you decide.

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