If you’re facing a financial crisis, such as divorce, lawsuit, wage garnishment, or perhaps a judgment has been entered against you, you may think you’ve waited too long to file for bankruptcy, but that’s not always the case.

In fact, filing for bankruptcy could be your saving grace, no matter what stage of debt collection you’re in.

Timing Bankruptcy When a Lawsuit Has Been Filed Against You

Once you receive a summons, you will have a limited amount of time to file an answer to the complaint. You must answer the complaint or the person suing will win whatever they’re asking for.

However, if you file for bankruptcy at this stage, the lawsuit will be stopped by an automatic stay. Once you file, the party suing you can take no further action without permission from the court.

As long you the debt doesn’t involve a child or spousal support, or dishonesty, all liability for that debt will be discharged once your bankruptcy case is concluded.

What if You Lose a Lawsuit?

Filing for bankruptcy can still help you, even if you’ve lost a lawsuit. Even if the court has decided that you owe a debt, the debt could yet be discharged at the end of your bankruptcy case.

There are some kinds of debts that can’t be removed. For example, you must pay your taxes, pay child/spousal support, or pay back money that was gained by fraud or some other dishonest means.

But, average debt from medical bills, loans, or credit cards can still be discharged, even if a judgment has been entered.

How to Time Bankruptcy when You’re in Foreclosure

In the case of foreclosure, it’s almost always better to file your bankruptcy before your home is actually foreclosed. You might get to stay in your house longer than you would if the foreclosure goes through.

It could also prevent your mortgage holder from being awarded a deficiency judgment.

Timing Bankruptcy with a Move

If you are moving to a new state, it may be best to time bankruptcy filing for after you move. You’ll need to consider the exemptions in both states carefully to determine what will be most beneficial in your case.

However, if you plan to buy the car with cash, check the exemptions in your state to see if your new car will be protected.

Bankruptcy Timing and Buying a New Car

It’s probably best to wait until your bankruptcy case is settled before you buy a car. It’s usually not a good idea to take on additional debt right before you file.

You can typically qualify for a car loan shortly after your bankruptcy case closes, so don’t let that be a determining factor. In the case of repossession, filing for bankruptcy will put a stay on the proceedings and possibly allow you to keep your car.

Bankruptcy Timing and Wage Garnishments

If your wages are being garnished, your creditor has already been awarded a judgment and been granted the ability to collect the debt from your wages.

However, even wage garnishment can be stopped by the automatic stay that comes with filing for bankruptcy.

The creditor may still be able to garnish your wages up until the day you file, but after that, you’ll be able to keep your paycheck.

Should You File for Bankruptcy Before or After Your Divorce?

Timing bankruptcy and before your divorce could make both proceedings less complicated and possibly even more affordable.

If the two of you file together, it will simplify the entire process. In some states, you may be eligible for double the exemption amounts when you file jointly.

Bankruptcy and Job Change

When you file for Chapter 7 bankruptcy, you must meet specific income requirements. Your income must either fall below the median income level for your particular state, or your disposable income must be below a certain amount.

Consider your income carefully if you are thinking about filing for Chapter 7. If the new job raises your income level too high, you may be ineligible. Don’t forget about bonuses because they will also have an impact on your income level.

Your income from the last six months will be used to determine your eligibility. Unfortunately, if you’ve recently lost your job, you may have no income.

However, if you were working for the six months previous to filing, the Bankruptcy Code automatically assumes that you will continue to earn the same amount for the next six months.

You may need to time your bankruptcy to make sure you don’t exceed income thresholds for the previous six months.

The Take-Away

If you have debts you can’t possibly afford to pay, bankruptcy can help at almost any stage of the debt collection process. The beauty of filing for bankruptcy is that once the debt is discharged, it goes away forever. Even though it’s rarely too late, filing early is almost always better than filing late