When you’re having trouble paying your debts because of a job loss or being too far in debt, filing for bankruptcy may seem like an easy way to get out from under what you owe. However, a bankruptcy should always be done as a last resort as it does not fully erase your debts. Before filing for bankruptcy, there several steps that you will need to take for the process to go smoother and to help you start recovering financially.
1. Hire An Attorney
While you can file for bankruptcy on your own, it is a long, arduous process and you could end up losing assets you could have retained simply due to your lack of knowledge about the process. An experienced bankruptcy lawyer will advise you on the steps to take to prepare for a bankruptcy, determine which debts can be discharged and they will help you determine which type of bankruptcy is best for you situation.
2. Determine Type of Bankruptcy
Most people who choose to file for bankruptcy select a Chapter 7 bankruptcy or a Chapter 13. A Chapter 7 allows for most of their debts to be discharged, except for student loans and back taxes. A Chapter 13 bankruptcy allows a repayment plan to be set-up to help settle your debts, sometimes at a reduced rate. There are specific requirements for each type of bankruptcy and your attorney will advise you on them.
3. Do Means Testing
A “means test” is one of the requirements you will need to fulfill prior to filing for bankruptcy. The means test takes a look at your income and the debts you owe to determine your ability to repay your debts. If you are able to pass the means test, you can then file for a Chapter 7 bankruptcy, otherwise you will need to file a Chapter 13. If you are a business owner or make a high income, speak to your attorney about filing for a Chapter 11 bankruptcy.
4. Speak to a Credit Counselor
Before you are allowed to file for bankruptcy, you will be required to go to credit counseling. A credit counselor can negotiate with your creditors to get what you owe reduced or allow more time to pay off your debts. There are several credit counselling services that offer free help and advice. This requirement can be fulfilled with online credit counseling or by speaking to someone in person.
5. Gather Documentation
You will want to gather all of the information you have about the debts you owe. Make a list of all your creditors and whether your debt to them is secured or unsecured. A secured debt is one in which there may be a lien or mortgage on any property that you own. If you are uncertain whether a debt is secured or unsecured, note that information. Your attorney should be given copies of all of the documentation.
SM Law Group Can Help
Filing a bankruptcy has several long-term consequences, so you will want to carefully discuss your options with an experienced bankruptcy lawyer.