Timing is Critical When Filing Bankruptcy in Colorado

Regarding the issue of WHEN to file under the new bankruptcy laws, many clients here in Colorado are in a situation of needing to find an experienced Denver bankruptcy lawyer sooner rather than later, particularly those facing an imminent wage garnishment, foreclosure on a home, or vehicle repossession. But, not as obvious are the drawbacks of filing too late.

More than a few of my prospective bankruptcy clients have waited much too long to file, particularly after finding a new job, with the higher income pushing them into a chapter 13 payment plan, under circumstances when a payment plan would not ordinarily been required or preferred. One client in particular was unemployed for almost two years and met with me back when she was still unemployed with the intent of eliminating all of her unsecured debts in chapter 7. About 4 months after she found a new job, she came back to my office wanting to start the bankruptcy filing process. What she didn’t realize was that the Means Test (which examines a debtor’s income for the 6 month period before filing) prevented her from filing for chapter 7. We eventually filed for chapter 13 and her monthly plan payment is quite reasonable but such a delay required my client to pay back $15,000 of unsecured credit card debt over 60 months, all of which could have been saved with better planning.

On the other hand, one reason to contemplate a delayed bankruptcy filing is if the debtor expects his/her income to decrease within the near future, perhaps from reduced hours at work, impeding retirement or due to medical/health issues.

Further, waiting to file may be advantageous if the bankruptcy debtor incurred recent charges on a credit card or takes out a cash advance for non-necessities (e.g. lavish items). Often, to avoid a fraud objection to discharge by an unsecured creditor, it’s advisable for the debtor to not only delay the filing but also to make some good faith payments on that particular credit card (this really depends on the amount and recentness of the charges, and the debtor’s overall financial situation).