Bankruptcy is an honest way for good people to get out of financial trouble and make a fresh start, whether they are filing bankruptcy on medical bills, credit card debt, or they have lost their job and can’t pay any bills.
However, filing bankruptcy and successfully getting your debt discharged is not as simple as going down to the courthouse and filing a petition. Bankruptcy is a fairly complex area of the law, and it is important to follow all regulations and procedures precisely. Once you make the decision to file for bankruptcy, follow these 8 steps to ensure you are properly prepared.
1. Choose a Bankruptcy Attorney
Choosing to hire an experienced bankruptcy attorney is always the best choice. Since bankruptcy law is complicated and fraught with red tape, it is important to have someone by your side, providing targeted advice that applies to your specific case. Your attorney can also run interference with your creditors and properly fill out all required financial forms from the information that you provide. Your attorney can also ensure that your rights are protected throughout your case.
2. Get Together Your Bills or Make a List of Who You Owe
You will be required to disclose your full financial picture. You should get together all of your bills to supply to your attorney. You should also make up a list of anyone that you remember you owe if you don’t have a bill.
Your attorney should also order a copy of your credit report. If there is reason to believe that a creditor is preparing to garnish your wages or levy your bank account, your attorney might suggest filing an emergency bankruptcy petition to prevent these actions.
3. Stop Using Credit
It is unethical to borrow money after you decide to go bankrupt. The court will look back 70 to 90 days before your filing date to determine if you incurred new debt. Payday loans are in a gray area, since many people rely on a payday loan cycle to pay their essential living expenses. If you are currently trapped in a payday loan cycle, ask your attorney for advice. If you absolutely must borrow money for food, gas, housing, or lifesaving medications, keep scrupulous records of each transaction. Do not borrow money for any other reason, even from family and friends. If you did use your credit cards in the prior months, you should explain to your attorney if these purchases were normal household purchases, or if they were for a luxury item such as expensive airline tickets, an expensive vacation resort, etc.
4. Quit Paying Unsecured Creditors
With your attorney’s approval, stop making payments to credit card companies, medical bill collections agents, and other creditors who hold unsecured debt. These bills will be discharged in your bankruptcy, so it makes little sense to continue making payments. Above all, avoid paying more than $1,000 to any unsecured creditor, even a friend or relative. Courts look back 90 days for traditional creditors, but a full year for personal loans made by family or friends. Preferential transfers, or payments that are larger than the creditor would receive as part of your bankruptcy, may be contested in the bankruptcy.
5. Go on a Financial Diet
Before, during, and immediately after your bankruptcy, you will need to live without credit. Take this opportunity to create a realistic cash budget or have your attorney help you prepare a financial plan. You should make up a list of your living expenses and what you believe it will cost you each month. If you don’t know how to do this, your attorney can prepare a monthly budget with your help. Include such monthly bills as rent, utilities, and telephone, along with payments for any secured property you intend to keep, such as a mortgage on a house you own or an automobile that you wish to keep.
6. Determine Your Timeline
The bankruptcy court will consider all of your financial activity during the six months immediately preceding your filing date. If you have unusual bank account activity, such as holding funds for someone else, stop that activity immediately. Give your attorney all information concerning funds that you hold for other parties. In addition, if you plan to move to another state, obtain a large sum of money such as a bonus from work, or otherwise change your income, expenses, and exemptions, your bankruptcy timeline might be affected. Ask your attorney to help you develop an optimal timeline.
7. Don’t Reaffirm Debts Unless Your Attorney Advises You To Do The Same
If you are keeping secured property such as your car, home, or other items that you are paying for in installments, you may wish to reaffirm the debt. This means that you agree not to discharge the obligation in bankruptcy, but to keep making payments instead. However, this does not always make sense, especially if you are upside down on a loan. You might be able to negotiate a lower interest rate or other more favorable terms, but proceed carefully and with the assistance of your attorney. If you later fall behind, you could lose your property without the benefit of bankruptcy protection. In many cases your bankruptcy can proceed without the reaffirmation of any debt.
8. Make a Recovery Plan
Bankruptcy will appear on your credit report, but it does not mean that you cannot obtain credit at all. In the first months, you will only be eligible for low-limit credit cards, but over time, you can rebuild a healthy credit profile. Start planning for your financial recovery, making sure not to overextend your budget.
Bankruptcy is a complicated legal process that must be undertaken cautiously. With the help of a knowledgeable bankruptcy attorney, the process can be made simple and easy to understand. Once you file, you will be on the road to a true financial fresh start.
If you are ready to take the first steps toward financial freedom, call The Law Offices of David M. Offen today at (215) 625-9600 to schedule your free initial consultation. We’re here to help you every step of the way.