Bankruptcy is an excellent option for many people struggling to make ends meet, but it is also a complex and detailed process that must be navigated carefully. Understanding the steps to take before, during, and after filing for bankruptcy will guarantee the best possible outcome for your financial issues.
In this article, we will look at the steps to take prior to filing for bankruptcy. Part 2 will address what to do during and after the process.
Pre- Bankruptcy Preparation
Properly preparing for a bankruptcy case not only streamlines the entire process but also ensures everything needed for success is available. Before filing for bankruptcy, individuals should:
- Protect Assets: When dealing with complicated financial issues, many people rush to make decisions in order to find immediate relief. However, the decisions made before filing will become important during the case and could impact the final outcome. In order to best prepare for success, individuals should avoid the following:
- Tapping retirement funds to pay off debt
- Running up credit cards or accumulating more debt
- Selling or transferring property for less than its current market value
- Failing to file tax returns
- Consider Other Options: Bankruptcy can be a fantastic solution for those with an overwhelming amount of debt. However, it’s also a difficult process with lasting consequences. Bankruptcy remains on an individual’s credit report for 7-10 years and impacts the purchasing power in the future. If one is at risk of losing their personal home, has bills in collections with no way to pay them, or has experienced illness or a job loss that affects their income – bankruptcy is typically the best option.
- Attend Credit Counseling: Credit counseling is mandatory for those individuals who plan to file for bankruptcy. These classes are meant to help people assess their financial situation and discover ways to repay debts without filing for bankruptcy. The completion certificate must be submitted to the court along with bankruptcy forms. Pre-bankruptcy credit counseling sessions can take place in person, online, or occasionally over the phone and take only a few hours to complete.
- Decide Which Chapter to File Under: Once the bankruptcy decision has been made, the filing party must determine which chapter is best for their specific situation. While there are many options under the Bankruptcy Code, most people end up filing for one of these two options:
- Chapter 7 is ideal for lower-income people with few assets. Some assets may be liquidated in the process, but most or all unsecured debts will be discharged. In order to qualify for Chapter 7, an individual must pass a “means test” that ensures their income falls within an established range. (Read more about the Means Test here.)
- Chapter 13 was created to assist higher-income people who own more assets. Chapter 13 is known as a “reorganization” because it helps to set up a repayment plan with creditors rather than discharging debt. Although some unsecured debts can be discharged, most will be made part of a repayment plan that will last 3-5 years.
- Hire an Experienced Bankruptcy Attorney: For those in financial crisis, spending money on an attorney may not seem possible. However, filing for this type of relief can be a challenging and complex process, and minor mistakes could cost the filer money or even their case. Working with an experienced attorney will not only save time and alleviate anxiety but also help to guarantee the best potential outcome.
If you are considering filing for bankruptcy, contact the team at the law offices of Richard V. Ellis to schedule a free legal consultation.