When to File Bankruptcy and How to Plan for It

Even though a bankruptcy may be filed on an emergency basis, debtors will be better off if the bankruptcy proceeds in a more circumspect fashion. Some attorneys and preparation firms charge a higher fee if the bankruptcy has to be filed on an emergency basis. This is understandable because you are asking to go to the head of the line and work on other cases has to be stopped or delayed. The court may not find that your reason for the filing of the emergency case was sufficient. The court could dismiss your case and you would have to start over again causing you to have to pay another filing fee and the lost of some important rights.

Foreclosure and Other Exigent Circumstances

The timing of a bankruptcy filing may be dictated by your immediate circumstances.  If you are nearing the end of the foreclosure process and have received a Notice of Sale you can file the bankruptcy shortly before the actual sale date.  A case may be filed that is deficient if exigent circumstances warrant.  Exigent circumstances may include immediate foreclosure (notice of sale), an unlawful detainer, a wage garnishment, or execution to name the main ones.

Pre-Bankruptcy Counseling

In virtually all cases you are going to need to file a Debtor’s Certification of Credit Counseling.  Generally the counseling has to be obtained before you file except in the case of an emergency. The counseling is not complicated and can be obtained from a number of online providers.  However, it may take you a few days to schedule the counseling and it will take a few days to obtain the certificate.

Planning for Bankruptcy Makes All the Difference

The bankruptcy process can go very smoothly or be very challenging.  What you can do to make the process go smoothly is plan.  By planning I do not mean bury the family jewels in the back yard.

Get Professional Bankruptcy Advice

The reality is that if you have lost your job or have incurred huge medical bills that you cannot pay your are probably having some sleepless nights and do not know what do.  Go see a bankruptcy professional and get some advice.  You may me able to change some property that is non-exempt into property that is exempt which would allow you to retain the property.

Do NOT Touch Your Retirement Plans

Do not cash out your retirement plans in an effort to hang on.   Most retirement plans are 100% exempt and will not be lost if you file.  Some savings are also exempt and use of them should be deferred until you develop your strategy to deal with your financial circumstances.  I frequently see people who in good faith cashed out their IRAs and 401k plans in an effort to stave off the inevitable.  They were hoping for a turn around that never happened.  Be realistic.  You may have been making $25 or $30 an hour as a roofer or dry-wall-hanger, but most of these jobs are gone right now. 

Seek Help Early On

The bankruptcy system was set up to help those in true financial difficulty but there is no requirement that you be homeless and destitute before filing.  Pride is often given as a reason for poor planning.  Many people have told me that they had to exhaust all possible avenues to pay their bills and were not comfortable in seeking bankruptcy relief.  This is very similar to people who do not seek medical attention when they are sick.  Some wait too long and never recover; some recover but suffer huge damage as a result of their delay.

Be Open with Your Spouse

Find out exactly what condition you are in and be open about the situation with your spouse.   I have actually spoken to some couples who have been on the road to financial ruin for months or years and one of the spouses simply had no idea of the nature and extent of the problem.

Act Appropriately

Once you are aware of you true financial status, explore your options.  You need to be very careful. I have met with many people who have paid thousands of dollars to unscrupulous debt consolidation companies.  Debt consolidation may be a viable option for you.  At least one well known financial planner recommends contacting the National Foundation for Credit Counseling to obtain a referral to a local counselor.  Locally, Consumer Credit Counseling of Orange County provides this type of service.

Get Educated. Do Pre-Bankruptcy Counseling Instead of Debt Consolidation

If you are thinking of debt consolidation then take Pre-Bankruptcy Counseling from an approved credit counseling course before you sign up for Debt Consolidation Services.  The counseling will help you get a realistic view of your financial health.

Before you commit to a debt consolidation plan, speak with a bankruptcy professional.  Bankruptcy may be a better alternative or your last resort. The bankruptcy professional can look at your situation with a neutral eye and tell you if your plan is feasible.

Stephen C. Hosford is a graduate of Western State University and holds a B.S. degree in accounting from San Diego State University. Mr. Hosford has been practicing law since 1977. He is a member of the Central District Consumer Bankruptcy Attorney Association, the California Bar Association, and the Orange County Bar Association.