If you qualify for Chapter 7 bankruptcy and are approved for a discharge, your unsecured debts will be wiped away. This is a great way to start over with your finances, but there can be consequences. In return for a discharge of debts, the bankruptcy trustee has the right to take assets you have. Because of this, timing is important for filing. If you file at the wrong time, your case may be dismissed, or the trustee could seize things you own. Here are three things you should understand about Chapter 7 and when the right time to file is.
How Your Income Is Calculated
You will not qualify for Chapter 7 bankruptcy if your income is too high, and your attorney will calculate your income by examining it for the last 180 days, or six months. This will not only include your normal income from work, but it will also factor in other sources of income, such as:
- Child support or alimony
- Lottery winnings
Every penny you have received must generally be added in to determine how much money you earned in the last six months. If this amount is greater than the median income in your state, you will not be able to use Chapter 7 bankruptcy.
Because of the way this works, it might be wise for you to time this out right. If you received a large sum of money three months ago that would cause your income to exceed the guidelines, you might want to wait for three more months to file. By doing this, it will not be added into your total income amount needed to qualify you for Chapter 7.
How The Trustee Views Giving Away Assets
Another factor the trustee will look at involves assets you own or recently owned. The trustee has every right to seize some of your assets during Chapter 7. When this happens, the trustee uses the money to pay off debts that would have otherwise been discharged. To prevent losing assets, some people will "give" them away before they file. While you are free to give away things you own, you should be aware that the trustee can view this as fraud.
If you gave away valuable items to close friends, the trustee may suspect you did this simply to deceive the bankruptcy court. If you decide to give things away for this purpose or any other, you must do this at least one or two years before you file. The trustee may ask you about assets you once had, and you must be honest about them.
To avoid running into this problem, you should not give away your assets within two years or filing.
How Upcoming Windfalls Could Affect You
Finally, your timing is important because of the way future windfalls could affect your case. Any cash windfall you receive within 180 days after filing for bankruptcy could become part of the bankruptcy estate. In other words, the trustee could seize the money you receive, if you receive it within this time frame.
In addition, the trustee may also be able to seize money you receive after 180 days have passed if you knew about it at the time of your bankruptcy filing. This is why the trustee will ask you if you are involved in a lawsuit that could result in winning money. This is also why the trustee may ask you if you are expecting an inheritance any time soon. To prevent losing this money during your case, you may want to wait until after you have received the money to file.
If you are not sure if now is the right time to file, talk to a bankruptcy attorney like Wade Bettis, J.D., Ph.D., PC. Your attorney can help you decide when the right time is, and the attorney will base this suggestion on some of the things listed here.