When is the best time to file a Chapter 7 case?

The answer depends on a few factors:

• The status of the debtor’s (I’m going to assume that’s you, the reader, from now on in this post) dischargeable debts.
• The nature and status of your nonexempt assets.
• The actions taken or threatened to be taken by your creditors.

The following rules should be your guide:

1. DO NOT FILE the case until all anticipated debts have been incurred. Why? Only debts that have been incurred when the case is filed are dischargeable. If your timing is off on this aspect of your case, it will be another six years before you are again eligible for a Chapter 7 discharge.

For example, let’s say you incurred substantial medical expenses. You should not file a Chapter 7 case until your illness or injury has been either cured or covered by insurance. It will do little good to discharge, say, $100,000 of medical debts now and then incur another $100,000 in medical debts after the case has been filed.

2. DO NOT FILE the case until you have received all nonexempt assets to which you may be entitled. If you are is entitled to receive an income tax refund or a similar nonexempt asset in the near future, the case should not be filed until after the refund or asset has been received and disposed of. Otherwise, the refund or asset will have to be turned over to the trustee.

3. DO NOT FILE if you expect to acquire nonexempt property through inheritance, life insurance or divorce in the next 180 days, because the property may have to be turned over to the trustee.

4. DO FILE if an aggressive creditor has threatened to attach or garnish your assets or income. Why? The case should be filed immediately to take advantage of the automatic “stay” that accompanies the filing of a Chapter 7 case. I’ll file a post solely on the subject of a stay - a suspension of most collection and legal proceedings against debtors that accompanies the filing of a Chapter 7 case.

If a creditor has threatened to attach or garnish your wages, or if a foreclosure action has been filed against your home, it may be necessary to file a Chapter 7 case IMMEDIATELY in order to protect your interest in the property.

In my next blog post, I am going to explain exactly how a Chapter 7 filing can help to protect your assets under the right circumstances.

Thanks for reading and let me know if you have any questions,

Matt
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Matt Hughson
New York Bankruptcy Lawyer
Ziff Law Firm, LLP
303 William St., Elmira, NY 14901
Tel: (607) 733-8866
Fax: (607) 732-6062
Toll Free: 1-800-943-3529
Email: mhughson@zifflaw.com
Web: http://www.zifflaw.com

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