Before the bankruptcy laws were “reformed”, my rule of thumb was not to file bankruptcy when you were out of work. For most folks, they had nothing that even a creditor who sued and got a judgment could take from them.
Wait, I counseled, until things get better, until you know the worst is behind you and you have wages to protect from creditors.
My advice has changed 180 degrees under the “new” bankruptcy law.
Now, when you have no income and no job prospects appears to be the “right” time to file. That perversity is the result of the means test, which gages your ability to repay your debts in the future by looking at your income for the past six months.
Under BAPCPA, there’s further peril, even if your income looking backward is next to nothing. One of the subsections of 707 allows the UST to object to your discharge based on your future income, even if you pass the means test. Ugh!
What better time to take the means test (often in my office known as the MEAN test) when there is neither money in your past nor money in your future to pay to creditors.
It hurts me to say to someone living on unemployment or the support from family that they need to pay for a bankruptcy now. It seems like a poor use of money.
Yet, if you wait til you have a job, some of that income may appear in the means test look back period, and a steady income is shown in the bankruptcy schedules that look at your income and living expenses going forward.
So the legislators who were so clever at figuring out how to stick it to those poor folks who “didn’t want to pay their bills” just created an incentive to file sooner to discharge debt when we know it will be dischargeable.
Next Week’s Question: Can You Save Your IRA or 401(k) before Bankruptcy?
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