The New Year is a time of reflection, resolution, and transformation. Many people use January to evaluate their past year and set new goals for the future. For some, this includes financial goals, especially if their previous year was marked by overwhelming debt. If you’re facing financial struggles, filing for bankruptcy can provide an opportunity for a fresh start. January is particularly beneficial for those considering bankruptcy, as it can help reset your financial trajectory, offering a chance to alleviate stress, reduce debt, and rebuild your financial future. Let’s explore how filing for bankruptcy at the start of the year can be a strategic move.
Richard H. Cole
Partner
Thomas F. Hewner
Partner
Donna L. Haslinger
Partner
Vivian P. Roche'
Partner
Keith R. Rosso
Attorney
Tasha D. Frazie
Attorney
Tyler I. Wood
Attorney
Marc A. Cangé
Attorney
Teresa M. Cappiello
Attorney
Why January is the Best Time to File for Bankruptcy 
The first month of the year is often associated with new beginnings. After the financial stress of the holidays, many people find themselves dealing with debt they may have accumulated over the previous months. January offers a unique opportunity to tackle this head-on. Here’s why filing for bankruptcy during this time can provide valuable advantages:
- A Fresh Start for Your Finances: Entering the New Year with a clean financial slate can give you the motivation to make better financial choices moving forward. Bankruptcy allows you to eliminate or restructure your debts, giving you a fresh start to build a more stable financial future.
- Post-Holiday Financial Relief: Many people find themselves struggling with debt that accumulates during the holiday season. Filing for bankruptcy in January can help you start the year without the burden of post-holiday debt, offering you the opportunity to move on from past spending mistakes and start fresh.
- Tax Season Considerations: If you’re eligible for a tax refund, filing for bankruptcy in January can ensure that your refund isn’t taken by creditors or used to pay off outstanding debts. By filing early, you can protect your assets and secure any tax refund you may receive.
- Avoiding Delays and Backlogs: Filing early in the year can help you avoid delays in your bankruptcy proceedings. As the year progresses, courts may become busier with cases, which could lead to slower processing times.
- Strengthen Your Credit Over Time: While filing for bankruptcy will initially affect your credit score, it can help you rebuild your credit in the long run. The relief from overwhelming debt will enable you to make smarter financial choices and slowly improve your credit score over time.
Types of Bankruptcy and Which One is Right for You
When it comes to bankruptcy, there are two primary types for individuals: Chapter 7 and Chapter 13. Understanding the differences between these two can help you determine which type is the best fit for your financial situation.
Chapter 7 Bankruptcy
Chapter 7 is known as “liquidation bankruptcy.” It is typically for individuals with little to no assets and limited income. This type of bankruptcy allows individuals to discharge most of their unsecured debts, such as credit card balances, medical bills, and personal loans.
The key benefits of filing Chapter 7 include:
- Quick Debt Relief: One of the main advantages of Chapter 7 is the speed of the process. Most cases are completed in just a few months, allowing you to eliminate your debts quickly.
- No Repayment Plan: Unlike Chapter 13, you don’t have to make any repayment plans. Once your bankruptcy is discharged, your debts are wiped clean, and you are no longer legally obligated to pay them.
- Property Exemptions: While Chapter 7 involves the liquidation of some assets to repay creditors, many people are able to protect certain assets through exemptions. The specific exemptions vary by state, but common protections include your primary residence, personal belongings, and retirement accounts.
Chapter 7 may be the right choice if you have limited income and few assets. However, not everyone is eligible for Chapter 7. To qualify, you must pass the “means test,” which assesses your income in relation to the median income in your state. If your income is too high, you may not qualify for Chapter 7 and will need to explore other options.
Chapter 13 Bankruptcy
Chapter 13, known as “reorganization bankruptcy,” is designed for individuals who have a regular income but may be struggling to keep up with payments. Unlike Chapter 7, Chapter 13 bankruptcy allows you to keep your assets while reorganizing your debt into a manageable repayment plan.
Here are the main advantages of Chapter 13:
- Keep Your Property: Chapter 13 allows you to keep your home, car, and other property. While your debt will be restructured, you’ll typically have the chance to make up any missed payments over the course of a three- to five-year repayment plan.
- Stop Foreclosure: If you’re at risk of losing your home to foreclosure, Chapter 13 can help you stop the process. As long as you adhere to your repayment plan, you can prevent foreclosure and keep your home.
- Discharge Remaining Debt After Repayment: At the end of your repayment plan, any remaining unsecured debt is typically discharged, offering you a fresh financial start. However, you’ll still be responsible for secured debts, such as your mortgage and car loan, which you must continue to pay.
Chapter 13 may be a better option if you have a steady income and want to keep your property. It’s also suitable for individuals who don’t qualify for Chapter 7 or want to avoid liquidation of their assets.
The Financial Benefits of Filing for Bankruptcy in January
Filing for bankruptcy at the beginning of the year offers several financial advantages that can make the process easier and more beneficial in the long run:
- Protect Your Tax Refund: By filing for bankruptcy early in the year, you can ensure that your tax refund is protected from creditors. In some cases, creditors may seize your tax refund to pay off outstanding debts. Filing early ensures that your refund is not used for this purpose and provides you with additional funds to help you start fresh.
- Eliminate Debts and Start Building Savings: The beginning of the year is a perfect time to start fresh with your finances. Once your bankruptcy is discharged, you can focus on rebuilding your savings, setting financial goals, and budgeting for the future.
- Consolidate Payments: For those filing Chapter 13, the repayment plan can consolidate all your debts into one monthly payment, making it easier to manage your finances. Instead of paying multiple creditors with varying interest rates, you’ll make one payment to the bankruptcy trustee.
- Stop Collection Efforts: Filing for bankruptcy in January can immediately stop creditor harassment, wage garnishments, and collection calls. This can provide relief from constant stress and allow you to regain control over your finances.
The Impact of Bankruptcy on Your Credit and Future
While bankruptcy can offer significant relief, it’s important to understand how it may impact your credit. Bankruptcy stays on your credit report for up to 10 years, depending on the type of bankruptcy you file. However, this doesn’t mean your credit is permanently damaged. Many people who file for bankruptcy are able to rebuild their credit within a few years.
- Improved Financial Discipline: Bankruptcy forces you to evaluate your financial habits and make necessary changes. It may require you to cut back on unnecessary expenses, create a strict budget, and avoid future financial pitfalls. This discipline can be invaluable in rebuilding your credit and avoiding further debt problems.
- Rebuilding Your Credit: After bankruptcy, you can begin rebuilding your credit by taking small steps such as opening a secured credit card, making timely payments, and keeping your debt-to-income ratio low. Over time, your credit score will improve, allowing you to qualify for loans and credit at more favorable rates.
- Better Future Financial Options: Filing for bankruptcy in January can help set you on a path toward greater financial stability. By eliminating past debt and focusing on rebuilding your credit, you’ll be in a better position to take out loans, buy a home, or start saving for retirement.
How Bankruptcy Helps You Regain Control Over Your Finances
Filing for bankruptcy can be a powerful tool for regaining control of your finances. It allows you to start over with a manageable debt load, provides the chance to protect your assets, and offers a clear path to financial recovery.
Filing for bankruptcy can give you the breathing room you need to regain control of your finances and begin the year with a renewed focus on achieving your financial goals. Whether you choose Chapter 7 or Chapter 13, bankruptcy offers an opportunity for a fresh start.
Consult with a Bankruptcy Attorney at Cole, Sorrentino, Hurley, Hewner & Gambino, P.C.
If you’re considering bankruptcy, it’s important to consult with a skilled bankruptcy attorney who can guide you through the process. The team at Cole, Sorrentino, Hurley, Hewner & Gambino, P.C. has experience helping individuals navigate the bankruptcy process and can help you determine the best course of action based on your financial situation.
If you’re ready to take the next step toward financial freedom, contact us today to schedule a consultation. Let us help you start the year off right with the financial reset you need.
Filing for bankruptcy in January can be the perfect opportunity to reset your finances and start the year fresh. Whether you choose Chapter 7 or Chapter 13 bankruptcy, the process can provide significant relief from debt and give you the opportunity to rebuild your financial future. If you’re struggling with debt, don’t wait any longer to take action—contact the experienced bankruptcy attorneys at Cole, Sorrentino, Hurley, Hewner & Gambino, P.C. to discuss your options.