Timing Your Bankruptcy Filing: When to Delay or Avoid Bankruptcy Altogether

Not sure whether to file your bankruptcy case? These tips will help.

What you do shortly before filing for bankruptcy can create problems unnecessarily. If you've done any of these things, it might be best to delay your case, or even avoid filing altogether:

  • started a mortgage modification
  • purchased luxury goods or services on credit, or
  • transferred money or property to someone you favor.

You can also avoid potential bankruptcy problems by learning how bankruptcy works. Or, if you'd like more targeted information, try our quick ten-question bankruptcy quiz—it can help you spot potential bankruptcy issues fast.

When You'll Want to Delay Filing for Bankruptcy

You'll likely want to put a temporary hold on your bankruptcy filing if you find yourself in one of these situations.

Delay Filing for Chapter 7 Qualification Purposes

If you don't qualify for Chapter 7 now, but you will in a few months because of a drop in income, wait to file until you're qualified. For instance, suppose you recently lost a high-paying job and you'd like to lighten your debt load by filing for Chapter 7. If you don't yet qualify because the Chapter 7 means test averages your income over six months, give it time. Your average income will go down each month you remain unemployed.

Delay a Bankruptcy Filing When Modifying a Mortgage

If you're working with your mortgage lender to modify your home mortgage and you want to file for Chapter 7, you'll probably want to wait until you've completed the modification. Why? Because most lenders will stop working with you once the automatic stay goes into effect. If you're behind on your payments, you could risk losing your house because Chapter 7 doesn't have a mechanism to help people keep homes from foreclosure.

Otherwise, consider Chapter 13 if you're facing foreclosure. If you make enough to catch up on the payment arrears and pay other required amounts, you'll be able to eliminate debt and keep your home.

Delay Bankruptcy If You're Expecting a Windfall

If you're expecting a large amount of money from any source, you're probably not bankrupt. The good news? You'll likely be able to get yourself out of debt.

Don't be tempted to save a few bucks by filing a quick Chapter 7. It's rarely a good strategy. You must report any money you're owed or entitled to in your bankruptcy paperwork even if you haven't received it. And reporting requirements don't end when your bankruptcy closes. You must tell the trustee about any inheritance and lottery winnings you receive in the following six months.

However, if you don't think you'll get much, you could hold off on filing and spend the money on necessities like car repairs, replacement appliances, and dental work. Just keep good records. The trustee appointed to your case might ask you to prove you bought needed items and that you're not engaging in a strategy to avoid paying creditors.

Don't Do These Things Before Bankruptcy

Here are some things you won't want to do during the 90 days to two years before a bankruptcy filing. The time will depend on the circumstances.

Pay Certain Creditors

Under bankruptcy law, you're not allowed to choose or "prefer" one creditor over another. That's not to say you can't pay your regular monthly bills—you can. But, if you pay more than $600 to any other creditor within 90 days before filing, the Chapter 7 trustee can require the creditor to return the funds.

The lookback period increases to an entire year if the creditor is someone close to you or an "insider" and there isn't a minimum allowed amount. Insiders are typically family members and business partners, and even paying a bill on behalf of an insider will trigger the rule.

Example. Joe pays Bank $1,500 and files for bankruptcy 62 days later. The trustee will likely demand the return of $700 ($1,500 - $600 = $700).

Example. Chris repays $2,400 to his mother six months before filing for bankruptcy. The trustee will want Mom to turn over the $2,400. When Chris learns this from the trustee, he might decide to pay it himself to prevent the trustee from suing mom and obtaining a money judgment against her.

Learn more about clawback provisions and preferential transfers.

Gift or Transfer Money or Property

Giving away property or transferring money and receiving nothing or less than it is worth is also problematic. The trustee can look back two years for what's known as a "fraudulent transfer." The trustee can even reclaim an innocent gift; however, the filer won't be subject to the additional penalties accompanying actual fraud.

Example. Allison has $10,000 in a savings account. To hide it from the trustee, she moves the money to her brother's bank account and files bankruptcy six months later. The trustee can demand the money from Allison's brother, and because it's actual fraud, Allison might face additional penalties.

Example. Trish gave $5,000 of her big gambling win to her sister as a birthday gift. Almost two years later, Trish filed for bankruptcy. Because two years hadn't elapsed since Trish gave away the money, the trustee can demand $5,000 from the sister as a fraudulent transfer.

Charge Luxury Goods or Take a Cash Advance

If you know you can't repay your debts, stop using credit. Otherwise, knowingly running up credit cards before bankruptcy or taking out cash advances is considered fraud.

If you do this soon before filing for bankruptcy, the "presumptive fraud" rule makes it even easier for creditors to recover money. Your fraudulent intent will be presumed—the creditor doesn't have to prove it—if the purchase falls within these guidelines (amounts will increase April 1, 2022):

  • You charged more than $725 on luxury goods or services on an account within 90 days before filing bankruptcy.
  • You took out cash advances totaling more than $1,000 within 70 days before filing.

The takeaway? You won't want to use your credit card to purchase multiple pairs of Adidas Yeezys at the Shoe Stop within 90 days of filing for bankruptcy or take out cash advances of over $1,000 within 70 days before bankruptcy.

However, an exception exists for charging necessary items, but be prepared to show that your child needed snow boots or that you didn't have another way to pay the heating bill. Learn more about when to stop using credit cards before bankruptcy.

Navigating Your Bankruptcy Case

Bankruptcy is an unusual area of law because it's essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can't skip a step.

The forms and resources below will help you find more information. Also, you can use this list of Chapter 7 and 13 bankruptcy forms to see where this topic falls. And this handy bankruptcy document checklist will help you gather the things you'll need to complete the petition.

More Bankruptcy Information

Bankruptcy Forms

Your Statement of Financial Affairs for Individuals Filing for Bankruptcy (the form for property transfer disclosures)

Chapter 7 Statement of Your Current Monthly Income

Chapter 7 Means Test Calculation

Related Information

How Much Debt Do I Need to File for Bankruptcy?

Will I Lose All My Property If I File for Bankruptcy?

Will Bankruptcy Affect My Spouse?

Questions to Expect at the 341 Meeting in Your Bankruptcy Case

Need More Info?

We want to help you find the answers you need. Go to TheBankruptcySite for more easy-to-understand bankruptcy articles, or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by consulting with a local bankruptcy lawyer.

Talk to a Bankruptcy Lawyer

Need professional help? Start here.

How it Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you
Get Professional Help

Get debt relief now.

We've helped 205 clients find attorneys today.

How It Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you