As much as people perceive bankruptcy as a bad thing, there are good reasons you may want to file for bankruptcy in the future. Some large corporations and individuals do it routinely.
However, to get the best out of a bankruptcy case, it’s necessary to time the case perfectly. For example, some income taxes can only get discharged if they are more than three years old.
Remember, three years can be a big challenge. However, filing for bankruptcy too early can be disastrous you may be better off looking for a good business broker to sell your business.
This is because you may get stuck owing the income tax until the statute of limitations runs.
If you’re asking what is bankruptcy, here are some of the reasons that make bankruptcy a viable option.
- Filing bankruptcy prevents foreclosure, garnishment, repossession or lawsuits
You must have heard these arguments made up by and distributed by content marketing agencies.
Ric Dean, CEO at Caffeinated says “Attorneys love to promote their bankruptcy services based on the ability to prevent all legal and no-legal actions from creditors, which is not strictly true”.
This provision by the bankruptcy code is known as automatic stay. It’s an injunction from the court designed to prevent creditors from taking any action.
Thus, if you’re sure that some actions from your creditors are imminent, you can file a dispute now to either stop or postpone the action.
For example, once your creditors are notified of your bankruptcy case, they are prohibited from foreclosing on real estate, filing lawsuits against you, repossessing personal property like your car, and conducting tax levy.
Besides, the automatic stay stops garnishment of your bank accounts or wages. However, filing bankruptcy won’t reinstate your accounts and wages that were turned to your creditors before you filed the case.
Your rights may be limited if this isn’t your first bankruptcy case. Indeed, the automatic stay may not be activated particularly if you filed bankruptcy within the previous year. Thus, it’s wise to consult a professional bankruptcy attorney before you act. You should understand the risks and benefits of filing for bankruptcy the dame as you looked at the risks of setting up a business.
Another benefit of bankruptcy is that the automatic stay can prevent turn off of utilities or eviction. However, there are restrictions. For instance, the automatic can’t stop a landlord who has already obtained a court order to evict you.
While the automatic stay can force the utility companies to reinstate the services previously withdrawn, you should act fast to negotiate with the utility company to provide a hefty deposit to cover all the risks associated with the services.
- Relocated to a state with less favorable exemptions
Even during bankruptcy, you can keep some types of property particularly if the value of the property doesn’t exceed a particular limit.
These are known as exempt property or exemptions. The bankruptcy allows an individual state to determine the value and type of property to be classified as exempts.
In some states, these exemptions are more favorable than others. For example, in Texas, you’re allowed to keep an unlimited value of a home that doesn’t exceed 200 acres in rural areas and 10 acres in urban areas.
Surprisingly, Alabama exempts only $5,000 in equity in a home. This amount can be doubled if you and your spouse file for bankruptcy together.
Until a decade ago, if you were to relocate to Texas from Alabama, you could take advantage of the Texas exceptions to protect your property in Alabama.
However, the congress changed the bankruptcy law and made the situation worse. If you relocate to another state, the law requires that you apply Alabama State exemptions for the first 720 days while in the new state.
Remember, other restrictions may apply to your case. It’s therefore, important to consult a professional bankruptcy lawyer to help you determine the right course and timing.
- You’ve started a well-paying job or begun working after unemployment
To become eligible for chapter 7 bankruptcy, you should prove that your income doesn’t exceed a specific level over the last six months.
This limit amount is calculated using a form known as the Means Test. The calculation process takes into account your median income value, income for the last six months, and other expenses such as car repayments, medical expenses, insurance, mortgage, and more.
If you haven’t been working and you land a job, the more you wait before filing for bankruptcy, the higher your average monthly is likely to be.
That minimizes your chances of filing chapter 7 bankruptcy. Similarly, if you get an increase in your monthly pay, your average monthly income is likely to increase your monthly income.
- You are certain you will get property soon
Do you anticipate a year-end bonus? Are you likely to receive an inheritance (property) in the near future?
In case you’re certain you will receive property soon and you’re currently facing a financial crisis, it’s wise to file for bankruptcy before you get the property.
You should also apply for an exemption to it to keep it. Unless you to that, a trustee can take the property, auction it, and use the proceeds to repay a debt you owe.
However, in some circumstances, if you get the property within 180 days of the bankruptcy filing, the property will be treated as the property of bankruptcy estate.
In fact, it will be treated as part of the property you owned before you filed the bankruptcy. These properties may include proceeds from life insurance, inheritance, property from a divorce decree or marital settlement and more.