Your debt is soaring, you can’t get credit and your job security is shaky. It’s natural to think bankruptcy is your only choice, but bankruptcy attorneys and credit counselors point out that there are plenty of steps you should first take. You may find out you don’t even need to file. You need to investigate how many of your issues can be solved without resorting to bankruptcy. Bankruptcy may be a particularly good option for people in certain situations (such as when wages have been garnished, the majority of debt consists of unsecured loans and debt collectors are in the picture). Even if some of these apply to you, there are ways to avoid bankruptcy. For example, credit card agencies may be willing to negotiate lower interest rates or payment plans. Here are some tips if you’re considering bankruptcy.
1. Be aware of the repercussions of bankruptcy. Chapter 7, total bankruptcy, lasts about four months and remains for ten years on your credit report. Chapter 13, which allows you to pay back debts, stays for seven years. A Chapter 11 bankruptcy for a business can last more than two years. Buying a house and getting items such as a car or apartment become very difficult—even after your bankruptcy filing evaporates from your credit report.
2. Do not rack up debt for the sake of getting things while you can. For instance, buying a car since you think you won’t have to pay it back if you file for bankruptcy several months later is the wrong mindset and a crime in itself. Bankruptcy courts scrutinize the timing of all purchases made prior to filing, and if you end up not filing, that is extra debt you do not need. Also, any debts you incurred by fraud do not qualify for discharge. For example, if you lied about your income to get a loan, even if it was three years ago, that debt does not qualify for discharge.
3. Get free credit reports from the Annual Credit Report website. These reports will detail which creditors you owe. You may have forgotten about some who have not been in touch for a while, but the credit reports will remind you. However, some creditors do not report to agencies, so what is listed does not necessarily reflect all of your creditors. This step is critical because if you later decide to file for bankruptcy, you must list all your creditors or risk continuing to owe.
4. Map out your financial picture. Basically, make a thorough budget. You must know these four categories: income, assets, expenses and debts (and to whom). Are there expenses you can cut? Services or items you can go without or sell? Could you take another job?
5. Get credit counseling. A certificate of credit counseling is required anyway for bankruptcy pre-filing. The counseling can take time, so you are better off doing this sooner rather than later. Make sure the agency you go with is certified by the government. During counseling, you will learn about your budgeting and financial options and more about if you truly qualify for bankruptcy.
6. Retain an attorney. Bankruptcy laws and bankruptcy forms are complicated, and an attorney will smooth out the process for you. You will save more money this way than attempting to file yourself. Like credit counselors, bankruptcy attorneys will not automatically agree you should file for bankruptcy. The attorney is part of your team and wants what is best for you. Bankruptcy is only one option among several. Attorneys can also help you determine the best time to file. For example, if you expect to sustain huge, ongoing debts after you file (medical bills are one possible cause), you may be better off waiting to file until the medical crises leading to these bills have passed.
7. Let your creditors and debt collectors know once your attorney has filed a bankruptcy petition. This also includes creditors you plan to repay despite your bankruptcy. In your communication, list your attorney’s name, provide contact information and details about the court in which your attorney filed. In most cases, if you still owe on a car loan, you can keep the car, but the financer will probably have certain regulations you need to follow. If you fail to notify a lender that you have filed for bankruptcy, you risk losing the item the loan is for (a car in the case of a car loan). Once your petition is filed, creditors must cease all communication with you, and creditors for these debts your bankruptcy has discharged cannot contact you until your bankruptcy ends.
8. Be honest and upfront with your attorney and the bankruptcy court trustee handling your case. Overshare rather than undershare and certainly don’t lie. Any little omission puts your filing at risk and can turn out very costly indeed. In fact, you could potentially be imprisoned for as long as five years for bankruptcy crimes. Such crimes include hiding and transferring property, document tampering, deception and making false petitions. Include each and every asset you own. Detail all income for your dependents, even a small $200 per month job one of your children holds.
9. If you own your own business, include every little aspect about it too: its assets, debts, income, expenses and so on.
10. Be careful of scam artists. There are many reputable groups that will help you with certain things—a home mortgage modification, for example. But there are also many groups that will charge you hefty upfront for little or no work. For more information on this, go to the National Fair Housing Alliance website.
11. Bankruptcy will cover you but not necessarily a debt itself. For example, if you co-signed a loan with a friend or family member and that person is not filing for bankruptcy, then that person alone is legally obligated to repay the debt. This can lead to strained relationships, so be as honest and upfront as possible with these people about your options and their options.
12. Bankruptcy does not come free. It may not seem fair; you have no money, so how can you be expected to pay to file? But you will have to pay anywhere between hundreds of dollars to a few thousand. Even if you go it alone with no attorney, the filing fees are substantial, and since the forms are so complicated, your chances of making a costly and possibly criminal mistake are higher. However, in some cases, you may qualify for a fee waiver. You must petition the court for this, and your income generally cannot be more than 150 percent of the federal poverty level.
13. Get as comfortable as possible discussing your finances. A lot of people are involved in a bankruptcy process. Even your creditors can question you during proceedings. Preparing yourself can minimize your any embarrassment and discomfort you feel.
For more information, see our bankruptcy page: http://www.davis-greene.com/bankruptcy/