Updated: March 28, 2019
If you are considering bankruptcy, it's important to know that sometimes the timing of your filing can have a big impact on your case. In certain situations, it makes sense to wait a while before you file to keep more property, discharge more debts, or avoid trouble with the bankruptcy trustee.
Different factors can cut different ways, so be sure to talk to a local bankruptcy attorney for help in determining when the best time is for you to file for bankruptcy.
Below are the ten most common reasons to delay filing for bankruptcy. (To learn about scenarios when filing for bankruptcy immediately is beneficial, see Top 7 Reasons to File for Bankruptcy Right Away.)
To give you a fresh start after bankruptcy, you can keep (exempt) much of your property. Each state has a list of exemptions that debtors strategically use to keep as much of their property as possible. To learn more about exemptions, see Bankruptcy Exemptions: An Overview.
Because every state has different exemptions, if you have just moved, the exemptions of your new state might be more favorable for you than the exemptions of your old state. But to use the exemptions of your new state, enough time must pass for you to establish domicile. So if you recently moved to a state with more favorable exemptions, considering delaying your bankruptcy filing until you establish domicile in your new state.
This issue can cut the other way, too. If your old state of residence has exemptions more favorable to you, you should probably file sooner rather than later. To learn more about domicile requirements, see Which State Exemptions Can I Use.
To qualify for Chapter 7 bankruptcy, you must pass the means test. The means test looks at your average income over the six months before you file. The lower your income, the easier it will be easier to pass the means test.
If you recently started a lower paying job, your means test average income decreases every month that you wait to file. This happens because for every month that passes you get to include the lower income for that month in your means test average income. So waiting to file for bankruptcy can help you pass the means test.
However, if your income has increased recently, you should file right away so your higher income does not lead to means test failure. Learn more about how the means test works.
Contrary to common belief, you can wipe out income taxes in bankruptcy. However, to do so, income taxes must be old. If you don't meet the time requirements for discharging your tax debt, it might make sense to delay your bankruptcy filing until you do.
To learn about the rules for discharging older income tax debts, see Can Bankruptcy Help With IRS Tax Debt?
If you purchase more than $725 (as of April 1, 2019) in luxury goods on credit from a single creditor within 90 days of your bankruptcy, usually you cannot wipe out the debt in bankruptcy. Likewise, if you take more than $1,000 (as of April 1, 2019) in cash advances from a single creditor (typically a credit card issuer) within 70 days of your bankruptcy, you usually cannot discharge the debt.
Be careful, however. The rules are in place for a reason. It isn’t a good idea to delay a bankruptcy filing simply to avoid repaying a debt. For more information, see Can I Use my Credit Cards Prior to Filing for Bankruptcy?
If you are expecting a large tax refund and you can’t protect it with an exemption, you'll have to turn it over to the bankruptcy trustee. In this circumstance, it might be better for you to delay your bankruptcy filing and spend the tax refund on necessities like college tuition for your child or car repairs. Be sure to keep good records of your expenditures in case you’re asked to account for the funds.
You can only discharge debt that exists before you file. Any debt that you incur after filing will not be discharged. So if you expect to incur more debt soon, such as medical debt for your baby that you will deliver soon, or debt to repair the recently broken home furnace to keep your family warm in the winter, it makes sense to delay your filing until after you incur that debt. You can only get a Chapter 7 discharge once every eight years, so it’s good to be sure you’re through the hard times before filing.
If one of your creditors happens to be a family member, and you repay that family member more than $600 within one year of your bankruptcy filing, the trustee can recover that payment from your family member.
To prevent the trustee from going after your family member, if possible, you might consider delaying your filing until one year has passed from the date you made payment. However, taking measures to avoid paying a creditor is one of the hallmarks of fraud, so you wouldn’t want to delay for this sole purpose. In bankruptcy, it’s better to follow the rules to the letter, even if it means losing a bit more money.
If you acquired a home within the past three or so years (1,215 days to be exact), bankruptcy law caps your homestead exemption at $170,350 (for cases filed between April 1, 2019, and March 31, 2022). This cap only matters if your state exemption is greater than $170,350. If you could protect more equity in your home without the cap, then it might make sense to wait until this 1,215 day period has passed. (11 U.S.C. § 522(q).)
If you sell valuable property for less than it's worth within two years of filing for bankruptcy, the trustee presumes that you essentially gave away the property to keep it from your creditors. The trustee can take the property back and sell it for the actual value. Because transferring property to avoid paying creditors is considered fraud, this isn’t a situation you want to be accused of. If this has taken place, it’s likely better to avoid filing for bankruptcy completely or to get solid legal advice from a bankruptcy professional before moving forward.
A nice benefit of Chapter 13 bankruptcy is that you can reduce (cram down) the loan balance on your car loan to the fair market value of the car. For instance, if the car loan is $15,000, but the car is worth only $7,000, you can cram down the loan to $7,000, wiping out $8,000 of debt. But to do this, 910 days must have passed between the date you purchased the car and the date you filed for bankruptcy. So if your car is worth less than what you owe on the car loan (which is very common), consider waiting out the 910 day period before filing for bankruptcy.