Bankruptcy and the Timing of the Petition
By Douglas Jacobs, California Bankruptcy Attorney on Jan 19, 2008 in Bankruptcy Practice and Procedure, Benefits of Bankruptcy, General Bankruptcy Information
Most bankruptcies start with the filing of a voluntary petition. That starts the automatic stay, stops creditor harassment and commences the case. Either concurrently or shortly thereafter the rest of the required documents must be filed. They consist of schedules of assets and debts, a statement of financial affairs and several other required pages. In a chapter 13 bankruptcy, a plan must also be prepared and filed.
But the date of the petition is the date for valuation of your property. If the bank account has $1000 in it on that day, it is irrelevant whether there are checks to be cleared or deposits to be made, it is that amount that is considered for bankruptcy purposes. [Of course, if you have money on hand, that must be disclosed as well, even if it is not in the account.]
In today’s horrible housing market, therefore, the value of your home may change dramatically from month to month. If you file on January 1st and your home is worth $250,000 on that day – that’s the value; regardless of how much it changes during the course of the next few months.
This can become very important for planning purposes. Let’s say you need to file a chapter 7 bankruptcy (and qualify to do so) and your house is worth $250,000 on January 1st with a $200,000 mortgage. The equity in the home is therefore $50,000 and, depending on the homestead exemption in your state, part of that may be property of the bankruptcy estate!
If, on the other hand, you wait for a month or two to file, and housing values in your area continue to plummet (as they are doing around the country), the value of your house may fall to $225,000 and therefore the $25,000 may be completely protected by the exemption amount and your house will be “safe” from the estate.
Similar calculations are relevant in a Chapter 13 bankruptcy. First of all, the amount of non-exempt equity in your home may be determinative of the amount you have to pay back in the Chapter 13 plan to the unsecured creditors. Further, the value of your home is crucial in arranging to wipe out a 2nd or 3rd mortgage: see the excellent post by my colleague, Craig Andresen.
These are tricky considerations, and only a qualified experienced bankruptcy attorney can help you decide what, when and how to file.
If you liked that post, then try these...
No Bankruptcy Discharge if Unlisted Credit Cards by L. Jed Berliner, Massachusetts Bankruptcy Attorney
Bankruptcy Basics: Chapter 7--The New Rule Is 8 Years! by Karen Oakes, Southern Oregon Bankruptcy Attorney
What Are The Creditors Duties Once They Have Been Informed Of A Bankruptcy Filing? by Peter Orville, Attorney at Law
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