In recent years, millions of American consumers have found themselves under severe financial pressure. Many are facing spiraling debt that they are increasingly unable to repay. Others are falling behind on their mortgage payments and are in danger of foreclosure. Adding to their stress is having to deal with harassing calls from debtors and collectors who demand payments and are making all sorts of threats.
For many of these debtors, bankruptcy is a possible way out of their financial troubles. All they need to do is exercise a legal option available to most people who wish to reduce or eliminate their debts, thus saving their homes and keeping bill collectors at bay. If you have taken on what seems like an insurmountable amount of debt, bankruptcy may be a welcome avenue to explore and one well worth considering.
The very creation of a bankruptcy code is so fundamentally American that it was written into the Constitution well over 200 years ago. Several Presidents, many wealthy industrialists, and lots of very famous celebrities have used bankruptcy to get out of financial troubles.
In this context, it is crucial to bear in mind that the timing of a bankruptcy filing may also impact your financial future. Therefore, it is highly recommended that you explore all options with an experienced bankruptcy professional and make an informed choice.
Moving Forward vs. Pausing
Decisions concerning your bankruptcy are, by definition, unique to each case. Depending on your specific debt situation, there may be certain restrictions in place, so each case has to be assessed individually. Consequently, it is impossible to come up with hard and fast rules about the best timing for filing, whether you opt for a Chapter 13 or a Chapter 7 bankruptcy, that will apply across the board.
Having said that, there are some generally applicable points worth considering.
The Current State of Your Financial Affairs
More often than not, people who used to have their finances under control begin to consider filing for bankruptcy when faced with a disrupting, unexpected life event. According to research, most filers (40%) are led to bankruptcy after losing their employment or otherwise experiencing a significant decrease in their income, resulting in problems with debts and bills. Other reasons include overspending (25%), medical crises (19%), divorce (9%), being widowed (2%), and dealing with addiction (1%) [1].
In cases when things suddenly take a turn for the worse and you find yourself facing increasingly spiraling debt while being unable to meet your payments, you may not have the luxury of waiting for the perfect moment to file for bankruptcy. Put simply, there will be times when strategizing for the unexpected won’t be possible, and you should consult with a debt consultancy professional sooner rather than later to find out about your options, before matters get completely out of hand.
If your bills are piling up and you are worried that you might soon be confronted with wage garnishment, bank account freezes, or shut-off notices, then be proactive and seriously consider filing for bankruptcy. Our experienced team at Roemerman Law is committed to providing debt and bankruptcy-related advice and treats each individual case with confidentiality.
Evaluating Your Situation
Obviously, filing for bankruptcy is not something one decides to go for at the first sign of financial distress. In addition to determining the actual state of your financial affairs and deciding to be proactive about it, you should explore various other options that may be available to you.
The contribution of a debt consultancy professional can prove to be invaluable. Alternatives such as getting credit counseling (which is actually a requirement for filing bankruptcy), negotiating your debt, taking out a debt consolidation loan, or devising a mutually agreeable payment plan with your creditors may be actions worth considering before making the decision to proceed with bankruptcy.
Having said that, if you have been drowning in debt for a long time and no other solution seems like it could realistically work out in terms of getting you back on your feet, bankruptcy might be the best option for getting a new start.
Risking Losing Your Home
Many consumers in severe financial arrears find themselves unable to meet their mortgage payments. If you are past due on your mortgage, you may be at risk of foreclosure and may be rightly concerned that you could end up losing your home. In such cases, filing for Chapter 13 “debt reorganization” bankruptcy could be an effective way of protecting some of your most valuable assets from foreclosure or other seizure. This includes real estate and other large assets.
If protecting your assets is one of your main concerns, your Chapter 13 repayment plan may include your mortgage arrears and should help you keep your home. Most filers are unable to repay their full arrears in a single payment, but many can catch up if they are asked to pay them over a 3-to-5-year period. Since this is the plan usually set out in a Chapter 13 bankruptcy, this can be a very effective way to save your home—and a very good time to consider filing for bankruptcy.
Saving Your IRAs and Pension Funds
Filing for personal bankruptcy, either under Chapter 7 or Chapter 13, may make it possible for you to keep your pension and retirement plan funds. Under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 [2], all types of Individual Retirement Accounts (IRAs) that are recognized under the federal tax code enjoy noteworthy protection from creditors during a bankruptcy, albeit with certain limitations.
This is a matter that you will need to look into with a bankruptcy professional, as the extent of protection you may be able to enjoy will depend on the type of your IRAs. For example, traditional and Roth IRAs—a type of IRA that is generally not taxed upon distribution—are currently protected to a total value of $1,512,350, with adjustments for inflation made every three years.
At the same time, Simplified Employee Pension Plan (SEP) and SIMPLE (Savings Incentive Match PLan for Employees) IRAs, comparable to employer-sponsored 401(k)s, profit-sharing plans, and pensions, are fully protected in a bankruptcy. This is also true of properly executed rollover IRAs originating from a qualified retirement plan [3].
Bearing in mind the above, if you are currently dealing with multiple debts that you are unable to pay off but also have some money set aside for your retirement, the time may be right for you to file bankruptcy. Working with a bankruptcy attorney in such situations will help you determine how to handle your retirement savings in the best possible way and how to protect them in every way that may be feasible.
Calendar Considerations
If you have some flexibility as to the timing of your filing, there are some timing aspects that may be useful to keep in mind. For example, many people opt to file for bankruptcy during the first quarter of the year. This lets them use their tax refund towards paying for the legal and court fees required to move forward.
Filing at the end of the calendar month is also popular, as it may reduce the amount of paperwork you will be required to fill in. For example, anyone wishing to file under Chapter 7 has to undergo a so-called “means test” to confirm eligibility for doing so. This involves—among other things—providing 60 days’ worth of pay stubs as proof of income. Therefore, filing at the end of the month means that you have one less month’s worth of income information to disclose, making this a potentially more advantageous time to file.
Going through with the plan
If you have considered the option of filing for bankruptcy and have decided that this would be the best way forward for you, it will be equally important to think about when and how to proceed.
Individuals are not required by law to file bankruptcy with a lawyer, meaning that you can file for bankruptcy on your own. Even so, it is a complex process that needs to be properly followed by taking correct and timely steps to succeed. Therefore, it would be highly advisable to seek the assistance of an attorney experienced in bankruptcy proceedings. Your attorney will review your case, address any questions you may have, consider your particular circumstances, and support you along the way.
Our team at Roemerman law is committed to helping you make the most of available bankruptcy tools, and our initial consultation is absolutely free. Contact Roemerman Law today for your free consultation or learn about qualifying for bankruptcy in New York. Book your appointment today and find out how we can help you decide if bankruptcy is the right option at this time for you.
References
[1] https://moneyfit.org/blog/why-do-people-file-for-bankruptcy
[2] https://www.congress.gov/bill/109th-congress/senate-bill/256
[3] Source: https://www.investopedia.com/ask/answers/081915/my-ira-protected-bankruptcy.asp. All amounts as of July 2022. Further information on IRAs and the various types of retirement plans can be found at https://www.irs.gov/retirement-plans/traditional-and-roth-iras, an official website of the US Government
