Should You File Bankruptcy Before Or During A Recession?
Posted on: 3 November 2022
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With a recession looming in 2023, financial stability is more important than ever. But should you boost your own stability by filing for bankruptcy before that recession hits? Or should you consider timing it during a recession?
The answer varies depending on your particular circumstances. To help you find the right timing, here are a few reasons to start your case now or later.
Why File Bankruptcy Now
Recessions tend to bring job instability and difficulty finding new ones. If you have any doubts about your household income being stable if the economy turns downward, you may want to shore up your monthly budget now. Carrying too much ongoing, mandatory debt gives you little wiggle room if things are slow for a while. So you may want to get rid of that debt while things are calmer.
Chapter 13 — also known as repayment plan — bankruptcy can be a good choice to start before an economic downturn, too. One main reason is that it takes three to five years to finish this bankruptcy, so you should get started early. You can craft a more manageable payment schedule now and will still be able to adjust it if your income is cut during a recession.
Why Wait to File for Bankruptcy
It's important not to jump the gun on bankruptcy, though. Debtors who receive a discharge in bankruptcy are banned from receiving more discharges for a number of years, so you don't get do-overs if things change in the near future.
Anyone who wants to file Chapter 7, or liquidation, bankruptcy must meet its tests in order to qualify. Among these are a limit on how much income you may earn and the amount of disposable income left after your expenses each month. If you lose a job or have your hours cut later, you're likelier to pass these tests.
Although you don't want to do anything that could be construed as bankruptcy fraud, keep in mind that the fewer assets you have, the less can be liquidated to pay debts. When the economy is humming, you may have more assets — such as real estate and vehicles — than if there's a downturn. In that case, filing too soon would see more of your stuff used to pay debts than filing in more dire circumstances.
Where to Start
Clearly, there are many reasons to file bankruptcy before things get bad, and just as many once things already are. Which chapter of bankruptcy is right for you? Determine that by meeting with a bankruptcy attorney in your state today.