How Quickly Should You Push For Bankruptcy?

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Someone who has decided to file for bankruptcy is also likely to want to get the process moving as quickly as possible. As any bankruptcy attorney will tell you, how quickly you should file for bankruptcy boils down to what your circumstances are. Lawyers typically look at the following three factors in deciding whether a client should move quickly with a bankruptcy.

Identifying Creditors

One of the most important aspects of bankruptcy for most folks is the automatic stay. This is a court order that informs all creditors to refrain from collection activities until the case is done. It's critical to name all of the creditors you're worried about in your bankruptcy case. Otherwise, they won't be subject to the stay, and they can proceed with collection actions as before. Worse, all unnamed creditors will have the right to keep seeking collection after the court rules in the matter.

A bankruptcy attorney wants to see a complete list of your creditors. They may need to contact some of them to get the basic information to fill in forms for the petition. A lawyer will not want to advance a case until all creditor information is collected and added to the paperwork.

Risks of Fraud Allegations

Certain financial activities before filing bankruptcy may be seen as fraudulent. If you sold a car to a relative, for example, the court might interpret this as trying to move the asset out of the reach of bankruptcy proceedings. Notably, this issue is only a problem in a Chapter 7 case where assets will be sold.

What makes this especially challenging is there are no specific guidelines for what does or doesn't count as transferring something fraudulently before filing. The judge will appoint a trustee, and the trustee will make a determination. If the transfer is deemed fraudulent, the trustee is empowered to claw back the assets for sale to protect the rights of the creditors. Consequently, a bankruptcy attorney would prefer to not see major asset transfers before filing a case for a client. They may also want to hold off on filing if they feel a transfer would be a bad look.

Immediate Need

Some folks need to file as fast as possible. This is usually the case when a homeowner is at risk of foreclosure. By filing right away, you may be able to stall the foreclosure by obtaining a stay from the court. Note, however, that someone liquidating assets in Chapter 7 will still likely have to give up the house. A stay still buys time to make other arrangements.

Reach out to a bankruptcy lawyer for advice for your particular case.