If you’re in the process of looking into bankruptcy as an option to eliminate overwhelming debt you can’t pay back, there are some things you need to know before moving forward. For example, you never want to sell or give away assets because that will work against you. You also need an attorney. No matter how many people say they’ve been successful without one, you’ll likely find the process complex and confusing.
Filing for bankruptcy is a big deal, and you don’t want to do it wrong. The following steps will help ensure the best outcome for your case.
- Hire a trusted bankruptcy attorney
If you aren’t a lawyer with experience in the courtroom, it’s best that you hire a bankruptcy attorney to handle your case. Everything from filing paperwork to making requests in court seems easier than it really is, and you don’t want to wait until you’re alone to have that realization.
An attorney will know the U.S. Bankruptcy Code, and can help you determine if Chapter 7 or Chapter 13 bankruptcy is your best option. Additionally, it’s possible that you might not qualify for bankruptcy at all, and in that case, an attorney can suggest different options.
For example, if you have student loan debt, you’ll have to take a different approach, like debt consolidation or a repayment plan. A good lawyer can guide you through whatever path you choose to take.
- Get serious about financial management
When you’re filing for bankruptcy, you can expect to be required to complete some type of debt counseling program. It’s never too early to start getting serious about your financial habits. Even before your case is heard, start doing what you can to improve your financial management skills. It will benefit you in the long run.
For example, start tracking your income and expenses to the penny. Knowing your income and bills doesn’t count. You need to actually enter them into some kind of digital program that will perform automatic calculations. For instance, if you enter $7,000 for your monthly income, and $5,600 for your monthly expenses, the program should calculate that you have $1,400 left. This is extremely basic, but it’s the best place to start.
Your financial management application should also include the ability to track different accounts, like checking, savings, and a business account. It should also allow you to calculate a certain percentage of your income that you’d like to save each month. Nerdwallet came up with a list of 8 budgeting apps, so check them out and use the one you like most.
- Be ready with several years’ worth of tax documents
If you’re filing for Chapter 7 bankruptcy, there are several reasons the court might deny your request for debt discharge. For example, failing to provide tax documents as requested by the court is a big one. If you’re trying to get your debt discharged, the court wants to know you’re truly unable to pay it back even with a customized payment plan. The only way to prove what kind of income you earn is through your tax return documents.
You can’t predict how many years the court will request, so make sure you have what you’re legally required to keep. In most cases, this will be seven years. If you have less than that because you haven’t filed in a while, get caught up as fast as possible. File all of your unfiled tax returns before your court date. Not filing your taxes won’t be a good excuse for why you can’t provide the requested documents and could cost you your case.
- Have a plan for not getting into debt again
Last, but not least, make sure you have a solid plan for avoiding big debt in the future. You might need some debt, like a car loan or a mortgage, and there’s nothing wrong with that. However, if you get a large amount of credit card debt handled in bankruptcy court, don’t let yourself get into that position again.
You might need to swear off of credit cards all together, and that’s definitely the easiest way to stay debt-free. If you don’t have a credit card, you’re not going to rack up an extensive bill that you can’t pay.
Trust your bankruptcy attorney
No matter what type of bankruptcy you’re filing, always trust the advice from your attorney. They are on your side and know what to expect in court. Allow them to guide you with their expertise because they have the experience to help you achieve the best possible outcome for your case.