When should a chapter 7 case be filed?

The answer depends on the status of the debtor's dischargeable debts, the nature and status of the debtor's nonexempt assets, and the actions taken or threatened to be taken by the debtor's creditors. The following rules should be followed:

1. Don't file under chapter 7 until all anticipated debts have been incurred, because it will be another eight years before the debtor is again eligible for a chapter 7 discharge. For example, a debtor who has incurred substantial medical expenses should not file under chapter 7 until the illness or injury has either been cured or covered by insurance, as it will do little good to discharge, say, $50,000 of medical debts now and then incur another $50,000 in medical debts in the next few months.
2. Don't file under chapter 7 until the debtor has received all nonexempt assets to which he or she may be entitled. If the debtor is entitled to receive an income tax refund or a similar nonexempt asset in the near future, he or she should not file under chapter 7 until after the refund or asset has been received and disposed of. Otherwise, the refund or asset will become the property of the trustee.
3. Don't file under chapter 7 if the debtor expects to acquire property through inheritance, life insurance or divorce in the next 180 days, because the property will have to be turned over to the trustee unless it is exempt.

If a hostile creditor action threatens a debtor's exempt assets or future income, the case should be filed immediately to take advantage of the automatic stay that accompanies the filing of a chapter 7 case. If a creditor has threatened to attach or garnishee the debtor's wages or if a foreclosure action has been instituted against the debtor's residence, it may be necessary to file a chapter 7 case immediately in order to protect the debtor's interest in the property.