Personal bankruptcy is a last resort, but it’s something that you should consider if your debt is unmanageable in your current financial circumstances. Experts say that bankruptcy may be the best option available for anyone who has been trying for five years (or more) to pay off debt and has been unsuccessful.
It’s a mistake to wait too long to file for personal bankruptcy. Waiting too long may involve depleting resources – such as home equity or retirement savings – that you will need in future years and that will be protected if your bankruptcy filing is successful.
If you are unable to decide whether bankruptcy is your best option, a bankruptcy lawyer can provide useful advice. Many bankruptcy lawyers offer a free initial session.
After you decide to file for bankruptcy, there are several things that you should do in preparation for filing. Here are seven recommendations.
1. Hire a bankruptcy attorney. While it is possible to file for personal bankruptcy without an attorney, it is not advisable. If there is any omission or error in the documents that you file with the court, your case may be dismissed (and you may lose the right to file again).
2. Give the attorney all the required financial documentation, including pay stubs, bank statements, tax returns, investment and retirement account statements, current loan documents, recent bills, and letters from collection agencies (where relevant).
3. Cease using all credit cards. If you add to a debt while you are considering filing for bankruptcy, it could be considered fraud. Especially problematic, in this context, are large purchases or cash advances. Experts advise that you destroy all your credit cards after you begin to consider filing for personal bankruptcy.
4. Take the mandatory credit counseling session. Before filing for personal bankruptcy, you are required to attend a one-hour session with a government-approved agency.
5. Move bank account balances from financial institutions where you also have debt. When creditors are notified of your bankruptcy filing, they may attempt to seize any funds on deposit. Therefore it’s wise to transfer such funds to an institution where you don’t have any debt.
6. Cease making payments on debts that will be erased at the conclusion of successful bankruptcy proceedings. Certain kinds of debt – including credit card debt and debt resulting from health care expenses – are wiped clean when bankruptcy is granted. Therefore it is probably prudent – although your attorney should be consulted – to stop making payments related to such debts.
7. Avoid giving away money or property. These actions could be considered fraudulent, in the context of a plan to file for bankruptcy. In fact, it is wise to check with your bankruptcy attorney before completing any significant financial transaction during this period.
Bankruptcy is never a desirable circumstance, but it is sometimes the best option available to an individual. If you decide to seek bankruptcy, you should heed these recommendations and follow carefully the instructions of your bankruptcy attorney.