When to file bankruptcy turns out to be just as important as whether to file.
I saw it playing out in a single day in my office.
All three consultations on Friday featured clients intent on filing bankruptcy IMMEDIATELY.
Each of them was certain that they had no time before some disaster would befall them if they didn’t file bankruptcy.
Yet, as we talked, I concluded the consequences of an immediate filing were worse than the perceived goblins chasing the clients.
Why waiting to file works
Waiting, in each case, allowed for a better bankruptcy outcome.
One client could put some time between the filing and an otherwise avoidable transfer to an insider;
For another, a final judgment in a divorce which would change the asset mix.
The third could collect and consume a stream of income worth more than the available exemption.
Hazards not really imminent
Many consumers think that the sheriff will swoop down and pluck their paycheck from their hands within days of being late on a credit card.
They have trouble understanding that creditors will invest a lot of time and energy trying to get customers to write them a check before they resort to the courts.
The other misconception that fuels the sense of urgency is a misunderstanding of how a lawsuit works. They imagine that filing the suit results in coercive collection on the spot. They are relieved to learn how long is really takes to get even a default judgment.
There are two points you need to make as a counselor at law:
- Due process takes time: it requires service of a complaint & opportunity to defend.
- Debts reduced to judgment are just as dischargeable as they were prior to suit.
Deliver a short review of constitutional principles, civil procedure, and bankruptcy law, and your client can file bankruptcy when the time is right.
Panic should not be contagious.