3 Things To Know When Timing Your Bankruptcy Filing

If you are in a debt situation that you cannot get yourself out of, bankruptcy can be a great option to give you a fresh start when it comes to your finances. However, there are a few things to know before you file the paperwork and get the legal process started, especially when it comes to the timing of when to do it. 

Know The Residency Requirements

It's important that you understand your local state laws regarding residency before you file for bankruptcy. There will be residency requirements where you must be a resident for a specific amount of time before you file. This is typically not longer than a few months, but it can prevent you from filing for bankruptcy if you recently moved. 

You do have two options if you have not met the residency requirements. You can go back and file for bankruptcy in the previous state that you lived in, which can be a hassle. You can also simply wait it out until you reach the required amount of days so you can do it all locally. 

Know The Exemption Laws

Every state has its own exemption laws for what you can and cannot exempt during a bankruptcy, and what the value of the total exemptions are. You'll want to familiarize yourself with those laws where you live. Much like with the residency requirement to file, there are also residency requirements for exemptions as well. You may have to live in your current state for an even longer amount of time to take advantage of their exemption laws. If you haven't reached the minimum residency time, you'll have to use the exemption laws from your previous state. 

The reason for these residency laws for exemptions is so that you are bound to the laws of the state where you live. Without them in place, people could change their residency to the most favorable state when filing for bankruptcy. 

Know About Preferential Payments 

A preferential payment is when you decide to pay back one creditor and not others before you file for bankruptcy. This is often the case when you borrow money from a friend or family member and want to ensure that they get their money back before other creditors because you intend to file for bankruptcy. Know that there are time periods in each state for how far back you'll be investigated for preferential payments. If you are found to have made a preferential payment in that period, the bankruptcy court could claw that payment back so it is distributed fairly among all creditors. 

Reach out to a bankruptcy attorney for more information.