When your finances are in disarray, it’s hard to enjoy let alone survive the holidays. You want to focus on your family and friends, not your financial difficulties. It’s hard to have the emotional capacity to consult an attorney about bankruptcy during this already emotionally challenging time of year. Yet, bankruptcy is a viable option, and it may be wisest for you to file before Christmas. Timing is crucial, and in this post, we look at the various factors you need to consider when making the decision to file for bankruptcy.
Two Types of Personal Bankruptcy
There are primarily two types of personal bankruptcy: Chapter 7 and Chapter 13. Chapter 7 bankruptcy takes only about four months from start to finish, and can eliminate almost all your debt. With Chapter 13 bankruptcy you retain your debt, and a way to pay off your obligations is worked out. It takes between three and five years. So the first thing to figure out when you are considering bankruptcy is whether or not you qualify for Chapter 7.
Filing for Chapter 7 bankruptcy is means tested; you must not earn more than the median household income for your state. In Wisconsin, the median household income was $60,773 in 2018 (according to figures released by the US Census ACS on September 26, 2019). The size of your household matters as well, and the bankruptcy experts at Burr Law can help you know definitively whether or not you qualify for a Chapter 7 bankruptcy.
Importantly, “income” excludes any money received during the actual calendar month in which you file. The median household income is determined by the numbers during the six calendar months prior to the filing. So, for instance, if you generally receive a holiday bonus in December, or your parents give you a monetary gift to help with presents for the children in December, it would be a good idea to file for bankruptcy before Christmas. Filing for Chapter 7 bankruptcy in December will mean that your household income will be calculated based on the numbers from June 1 through November 30. Survive the holidays by beginning the bankruptcy procedure when the means testing will work in your favor.
If you imagine that you can charge wonderful Christmas presents on your credit cards, and have a spectacular holiday, and then file for bankruptcy, that will not work at all. Bankruptcy law states that any debt incurred during the three months before or after Christmas that exceed $600 and that are not living necessities may be non-dischargeable debt. That particular creditor could file an adversary proceeding to determine that that debt is non-dischargeable. That means that you could be responsible for any purchases made during that time. When you file for Chapter 7 bankruptcy, your credit card use will be carefully examined to determine whether or not charges were “necessary.” Those deemed unnecessary could be non-dischargeable debt, and you may remain responsible for them. So filing for bankruptcy before or after Christmas will not make any difference to the categorization of non-dischargeable debt. Other non-dischargeable debts are certain income tax owed, domestic support obligations, debts to governmental agencies, and student loan debt.
Surviving the holidays is even more difficult when your financial situation is a mess. Even though you may be reluctant to confront the situation before Christmas, it may make a big difference in what kind of bankruptcy you can file and how your income is calculated. Make the time to consult one of our bankruptcy professionals at Burr Law today.