When Should I file a bankruptcy?

Generally people should file a bankruptcy immediately if possible to avoid further damage to their credit, stop lawsuits and eliminate harassing phone calls and solicitations.  However, the time to file can change when the following situations arise.

1.  Home Mortgage Modification.  Generally speaking, you should wait to file a bankruptcy after the modification has become permanent.  It is a good idea to wait until the modification is delivered to you in  writing.  However, if a lender is delaying a decision on a modification or has withdrawn a trial modification then the time to file a bankruptcy is now.  Oftentimes after a trial modification has failed, the next step is a Chapter 13 bankruptcy which allows a debtor to command debt relief instead of requesting it from a lender.  The only downside being that a Chapter 13 requires adequate income to afford the Chapter 13 Plan.


2.  Foreclosure not started or not completed where a deficiency judgment is unknown.  In a situation where a debtor is filing a bankruptcy for no other reason than to get rid of the liability on a deficiency judgment in foreclosure, often times it is good to wait to see if the deficiency judgment is actually entered and whether the creditor pursues collection.  Bottom line - if it is beneficial to wait and see if a bankruptcy is necessary - than wait - however, what is you become ineligible for a Chapter 7 bankruptcy while waiting or you have unnecessary stress while waiting to file bankruptcy.  The key is case by case, however, the old rule of thumb which is to file now is usually good except for special circumstances such as these.

3.  Recently a debtor came into my office with about $60,000 in credit card debt and two lawsuit filed.  He asked whether he need to file now and was worried about having enough time to get his legal fees together prior to filing.  Basically in this case, you file shortly before the garnishment actions start from the lawsuits.  The best time to file is several days before any citation order is entered.