Things You Should Probably Not Do Before Filing For Bankruptcy

Recently, we posted an entry about things you should NOT do before filing for bankruptcy.  Now, we’ll tell you about things you should PROBABLY NOT do before filing for bankruptcy.

• You should probably not quit your job.

A lot of our clients who earn too much income to satisfy the means test required to file for Chapter 7 bankruptcy ask us if they should quit their job.

Probably not, we tell them.

Quitting your job before filing for bankruptcy will raise the suspicions of the bankruptcy trustee, who takes the means test seriously.  The bankruptcy trustee may dismiss your case, which means you’ll need to resort to filing a Chapter 13 bankruptcy.  A Chapter 13 bankruptcy requires a repayment plan for your creditors.  You’ll be in quite the predicament if you are required to repay your creditors with no income.

Also, be aware that there is a six-month lookback period for determining whether you earn too much income to file for Chapter 7 bankruptcy.  This means that you may need to wait as many as six months before filing for bankruptcy after you quit your job.  If you think you’re strapped for cash now, wait until those six income-less months.

We know you’re asking why we only say you should PROBABLY not quit your job.  it’s because there are circumstances in which quitting your job is highly justifiable.  For example, if you have taken on a part-time or per diem gig in addition to your full-time job in order to supplement your income, you’ll likely be able to quit the extra job.  Anyone who has worked two jobs can tell you about the mental and physical toll it takes on them, and bankruptcy courts and trustees do not expect you to sacrifice your health in order to pay your creditors.

Here’s another action you should PROBABLY not take before filing for bankruptcy:

• You should probably not get a divorce.

The means test takes into account your income, as well as your spouse’s income, when determining whether you earn too much money to file for Chapter 7 bankruptcy – even if your spouse is not filing for bankruptcy.  Some of our clients with spouses who earn incomes that have put them over the Chapter 7 threshold have asked us if they should get a divorce.

Probably not, we tell them.

Again, you don’t want to raise the suspicions of the bankruptcy trustee, who will not look kindly on a debtor that files a sham divorce in order to qualify for Chapter 7 bankruptcy.  Of course, you will be able to convince the bankruptcy trustee that the divorce is not a tool to gain entry to a Chapter 7 case if you can demonstrate that the divorce has been in the making for some time before the bankruptcy case.  But bear in mind that there may be benefits to filing for bankruptcy before you get a divorce, as we discussed in a recent entry.