Many good reasons exist for people with seemingly overwhelming debt to file for bankruptcy protection, even though it can be a difficult choice. But sometimes it’s even more confusing to know when it’s time to take action.
Filing too early can have severe financial consequences if you are looking to discharge certain debts. However, in many cases, there are valid reasons to file as soon as possible to protect income and property.
Take these factors into account when considering bankruptcy
An experienced attorney who understands federal and state bankruptcy law can help you determine the best time to file by weighing these considerations:
Automatic stays: Filing for bankruptcy can put an immediate stop to creditors taking harmful actions, such as repossession, foreclosure, garnishing wages, evictions or even lawsuits.
Exemptions: Bankruptcy protection allows you to keep property like a home or vehicle as long as it doesn’t exceed a certain dollar amount. New Mexico sets the following limits:
- Home: $60,000 in equity (joint owners can double this amount)
- Motor vehicle: $4,000 (in 1 vehicle) (joint filers can double this)
- Jewelry: $2,500
- Tools of trade: $1,500
- Wild card: $500 for any personal property (excluding cash)
Employment: If you have been unemployed and get a new job or take a higher paying one, you should likely file as soon as possible as Chapter 7 cases factor in your average income over the last six months.
Expected income: It may also be to your benefit to file sooner if you expect a year-end bonus, inheritance or other property because once you receive it, the asset must be listed in your bankruptcy paperwork, and could be considered income that may push you out of chapter 7 eligibility.
What happens if you plan to move to another state?
Bankruptcy law allows each state to determine the dollar amounts for exemptions on property, and some states are more generous than others. However, once you move, federal legislation requires that you apply exemptions from your previous state for the first 720 days. Your bankruptcy attorney can help you sort through any other potential restrictions.