It is important to get your financials in order before making the decision to file for bankruptcy. Here’s a list of some of the things you can do to empower yourself in the decision-making process.

  • Gather your financial documents and make a list of all your debts, minimum monthly payments and the interest rate you’re paying on each debt. Being uninformed is ultimately more painful than seeing your financial life in black and white, and knowledge is powerful.
  • Make a budget, and try to figure out whether you have enough discretionary income — the money left over after you’ve paid all of your essential living expenses each month — to pay off your debts within three years. If so, you may be able to avoid bankruptcy.
  • Contact a nonprofit consumer credit counseling agency to help you set up a budget and negotiate a repayment plan with your creditors. Make sure you understand the exact terms of any negotiated agreement, and avoid any agency that wants to charge you for their services.
  • You can also try negotiating directly with your creditors. If they know you are truly on the brink of bankruptcy, they may be willing to lower your interest rate or spread your payments out over a longer period of time. From a creditor’s point of view, getting paid less or getting paid over a longer period of time is better than not getting paid at all.
  • If bankruptcy seems inevitable, decide which assets you most want to keep, as this will determine what type of bankruptcy is right for you.
  • See a lawyer as soon as you start thinking about bankruptcy. Most lawyers don’t charge for an initial consultation, and you can learn a lot by just talking with a bankruptcy lawyer for a short period of time.