Timing Your Bankruptcy Filing: When to File Right Away
If you are facing foreclosure, car repossession or wage garnishment, you might want to file for bankruptcy as soon as possible.
Deciding when to file for bankruptcy involves many considerations. But sometimes filing for bankruptcy as soon as possible is the best option. This might be the case if you are facing foreclosure, your car is about to repossessed, you have received a wage garnishment order, or you have a judgment lien against some property you own. Read on to learn more about when filing for bankruptcy right away is a good idea in order to avoid irreversible damage.
When you buy a house and take out a loan to pay for it, you give the bank a mortgage on the house in exchange for the loan. This means that if you default on the house payment, the lender can foreclose on the mortgage. Foreclosures work differently in every state, but the basics are the same: the lender will let you know you're in default on the loan and begin the foreclosure process. The lender will eventually set a date for the foreclosure sale, at which point the lender will sell the house to the highest bidder.
Bankruptcy can stop foreclosure because it creates an automatic stay against any attempts to collect on debt, and foreclosure is a type of debt collection. (Learn about bankruptcy's automatic stay.) However, if you want to use a bankruptcy to stop a foreclosure, you must file the case before the foreclosure sale occurs. For example, if you have a foreclosure sale scheduled on your house today at 3:00 P.M., you must file bankruptcy before 3:00 P.M. or it will be too late.
Once you file the case, the mortgage company will be required to cancel the foreclosure auction, giving you time to figure out what to do.
(To learn more see, Will Bankruptcy Stop Foreclosure?)
Imminent Repossession of Your Car or Other Property
Car loans are similar to house loans in that when you borrow money to buy a car, you give the lender a security interest in the car. If you don't make the car payments, the lender can repossess the vehicle and sell it. The automatic stay in bankruptcy can also stop repossession of a vehicle. If you file bankruptcy, the lender cannot take the car without court permission. However, to prevent repossession, you must file bankruptcy before the lender takes the car.
If you know your lender is trying to repossess your car and you want to file bankruptcy to stop the repossession, you must file the case before the lender takes the car. In some states, you can file bankruptcy after the lender takes the car and get the car back as long as you file the case before the lender sells the car; on the other hand, some states will not allow you to get the car back once the lender has taken it.
If you know the repo man is out looking for your vehicle and you want to file bankruptcy to save the car, file immediately. If the lender has already taken your car, you may still be able to get it back, but you must act quickly -- you may only have days before the lender sells the car at auction.
(To learn more, see Will Chapter 7 Bankruptcy Prevent a Car Repossession?)
Garnishment occurs when a creditor has a money judgment against you for a debt and takes money out of your bank account or your paycheck to satisfy the judgment. If you're already strapped for cash, a garnishment can put you in a very precarious position.
Bankruptcy's automatic stay stops all garnishments, and if you file before the garnishment begins, it can prevent garnishment from happening. Any amounts garnished from your wages or your bank accounts after you file your case must be returned to you. In some cases, you can even get back garnishments that were taken within the 90-day period before you filed bankruptcy, but filing bankruptcy as soon as you receive the notice of garnishment will prevent money from being taken in the first place.
(To learn more, see Can Bankruptcy's Automatic Stay Stop Wage Garnishment?)
A judgment lien is a security interest that a judgment creditor can attach to your property because the creditor has a money judgment against you. Like a garnishment, a judgment lien is something that can occur if a creditor sues you for the money you owe and wins. A bankruptcy can stop a judgment lien from attaching to your property if you file your bankruptcy before the lien attaches. If the lien attaches before you file bankruptcy, you will need to take extra steps to remove the lien; filing bankruptcy as soon as possible will prevent the lien from attaching.
If you need to file for bankruptcy in a hurry, you can file a bare bones petition and then file the rest of the paperwork soon after. To learn how to do this, see Filing an Emergency Bankruptcy Petition.