When is the Best Time to File for Bankruptcy?


Making the decision to file for bankruptcy can be a tough one to make. For many people, admitting that they need to file for bankruptcy seems like an admission of failure, and for this reason, people who would benefit from bankruptcy often hold off on doing so. However, sometimes, having that fresh financial start can be just what that person needs.

Many times, one of the main concerns with filing for bankruptcy has to do with the effect filing for bankruptcy has on the filer’s credit report.

If someone files for Chapter 7 bankruptcy where debt is eliminated after liquidation, this bankruptcy will stay on the filer’s record for up to ten years. If the person proceeds with Chapter 13 bankruptcy, this bankruptcy will stay on that person’s credit report for up to seven years.

After a bankruptcy is filed, a debtor may have to wait several years to apply for any new type of credit, including obtaining a loan or mortgage. It is for this reason that the decision to file for bankruptcy should be carefully made.

Ultimate Goal for Bankruptcy

Before deciding to file for bankruptcy, the filer needs to decide what his or her ultimate goal with the filing. Bankruptcy gives that person the chance to eliminate a significant portion or even all of his or her debt, making it no longer collectible.

Most of the debt that is eliminated is unsecured debt, including personal loan debt, medical bills, and credit card debt. Certain types of debt cannot be discharged in bankruptcy, including student loan bills, spousal support, child support and certain tax obligations.

If the person is facing mostly credit card or medical debt, going through a Chapter 7 bankruptcy seems like the most viable option.

What are the majority of the bills the individual is struggling with paying? If the bills and calls from collectors involve unsecured debt that would otherwise be discharged eventually in a bankruptcy case, the individual may be delaying the inevitable by waiting to file for bankruptcy.

However, if the person is struggling with a combination of secured and unsecured debt, is behind on mortgage payments and is wanting to keep the home, Chapter 13 bankruptcy may be the best choice for him or her.

Time Length of Case

The length of the bankruptcy case may also affect when the person decides to file for bankruptcy. A Chapter 7 bankruptcy can be completed in a matter of months while a Chapter 13 bankruptcy and repayment plan can take anywhere from three to five years.

The reason Chapter 13 bankruptcy takes somewhat longer is that it allows the individual to follow a repayment plan to pay back certain debts in an effort to keep property, including a home or other personal property.

It is also possible that the filer may not qualify for a Chapter 7 bankruptcy and may have no option other than to either file for Chapter 13 bankruptcy or hold off on filing.

If the filer’s family income is below the state median income, it is likely he or she will be allowed to file for Chapter 7 bankruptcy. If the filer’s income is above the median level, he or she will need to pass the means test to qualify for Chapter 7 bankruptcy. The means test will compare income and expenses to see if the filer has the ability to make payments under a Chapter 13 payment plan.

Influx of Income or Lump Sum of Money

Another important consideration to keep in mind is whether the person considering bankruptcy is expecting an influx of income or lump sum of money over the next couple of months.

If that is the case, such as a tax refund or inheritance, it may be wise to delay filing for bankruptcy. Otherwise, this money might have to be used to pay off qualified debts.

It may be best to wait until this money is received and used appropriately. For instance, the person could use this money to catch up on past-due mortgage payments and avoid bankruptcy. A bankruptcy attorney can discuss the potential filer’s options regarding any expected influx of money prior to filing for bankruptcy.


An experienced Texas bankruptcy lawyer can help you with any questions you may have about timing for filing your case. Call the Law Office of Marilyn D. Garner NOW at (817) 505-1499 for a free consultation to discuss how bankruptcy may help you.

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