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Deciding Whether to File for Bankruptcy

The decision to file for bankruptcy is a serious matter, and should be made only after careful consideration. Depending on your financial condition and the reasons for filing, the consequences of filing for bankruptcy protection may outweigh the benefits. The timing of the filing may be very important, and you should consider the following before filing for bankruptcy:

  • There may be a filing fee required to file a bankruptcy petition. Click here for a list of the fees associated with filing a bankruptcy case.
  • You may lose property, belongings, and possessions that are not “exempt” under the law.
  • Your state and federal tax refunds may become part of your estate and be distributed to creditors if you file bankruptcy before you receive the refunds.  As an example, if you file bankruptcy in October 2014, the bankruptcy trustee may be entitled to that portion of your state and federal tax refunds that you accrued up to the date you filed your bankruptcy, even though you may not receive the refunds for four or five months. Similarly, if you file bankruptcy after January 1, 2015 but before you either file your tax returns or receive any refunds, the trustee may be entitled to 100% of your tax refunds for 2014.
  • Not all debts can be discharged in bankruptcy.
  • In some instances, transfers of property and/or payments made to general creditors within ninety days prior to the filing of a bankruptcy petition, or relatives, friends, or business associates prior to the filing of a bankruptcy petition, may be recovered by the bankruptcy trustee.
  • Generally, a bankruptcy discharge covers debts incurred prior to the date of filing of the bankruptcy case.  If you incur additional debts after you file, they will not be discharged, and your ability to obtain relief in another bankruptcy case may be limited.  For example, if you file bankruptcy, and a month later you are injured and incur a substantial amount of uninsured medical bills, those bills will not be discharged in your bankruptcy filing.
  • A utility company currently providing service may terminate services if you do not pay a reasonable security deposit or provide other adequate assurance of payment within 20 days of the filing of the bankruptcy petition.
  • Your chapter 7 case could be dismissed or you could be required to proceed under chapter 13 if your income is above the state median and you could repay your debts.