Bankruptcy is naturally associated with insolvency. Often, however, an individual or business will be able to pay debts in full, yet needs relief because immediate payment would require selling assets at fire sale prices. While a debtor may not be “insolvent,” no one looks forward to selling assets at a steep discount.
Fortunately, the Bankruptcy Code does not require a debtor to await full insolvency to qualify for a bankruptcy filing. It “does not require any particular degree of financial distress as a condition precedent to a petition seeking relief.” United States v. Huebner, 48 F.3d 376, 379 (9th Cir. 1994).
There are at least two caveats to this rule. Both are apparent in the Huebner case:
- you cannot lie to make your financial situation look worse than what it actually is; and
- your filing must be in good faith and not abusive.
Huebner involved a criminal conviction for using a bankruptcy case as a tool to avoid taxes, furthered at least in part by false statements about the debtor’s financial situation.
If you are an Arizona individual or business facing financial distress, but are not presently insolvent, you should consult with a bankruptcy about whether a bankruptcy filing makes sense for your situation. For a free consultation, call (480) 719-1152.