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12 Steps You Should Take Now to Prepare for Bankruptcy
Facing debts that you are not able to pay is a scary situation. Many people who struggle with unmanageable debt do not believe they have any options.
While filing for bankruptcy to manage this debt is a solid option for many, not everyone is certain about what the bankruptcy process entails or how to best prepare for it. These individuals are often afraid of the bankruptcy process and skeptical they it can help them. The good news is, an experienced bankruptcy attorney can help you decide if filing for bankruptcy can help you manage what may seem like a hopeless situation.
If you do choose to file for bankruptcy, there are a few key things you can do right now to prepare yourself for the journey ahead.
Pay off Any Essential Bills
Prior to filing for bankruptcy, if you are able to do so, you should pay off any past-due bills for daily living essentials like rent or utilities.
Although you might be able to discharge a number of your debts, there is still a risk that you could end up without somewhere to live or having your utilities shut off if you do not take these steps before beginning the bankruptcy process.
Stop Using Credit Cards
A court will examine the 70 to 90 days before the date that you filed to determine if any new debt arose. Many people who are low on cash consider using credit cards to purchase food and other necessities.
If you decide to file for bankruptcy, however, you should immediately stop using credit cards because using them just creates additional debt. In some cases, using credit cards in this manner might even give the appearance of fraudulent activity.
If you find yourself out of money and unable to pay for essentials like food, housing, medication, or other necessities and you must use credit cards, keep detailed records of each transaction. You should also avoid borrowing money from family and friends.
Stop Any Automated Payments
After filing for bankruptcy, creditors are informed that they must immediately discontinue taking payments from you. Sometimes, however, these payments continue even after you have declared bankruptcy. By making sure that automatic payments are discontinued before entering the bankruptcy process, you will avoid the hassle of trying to get back money from creditors who received funds illegally through automated payments.
Stop Paying Unsecured Creditors
Stop making payments to unsecured creditors like credit card companies, medical bill collectors, and other entities before filing for bankruptcy. These debts are often discharged bankruptcy, which is why it makes sense to discontinue the payments. In some cases, payments of this nature can impact the amount of time it will take to obtain a discharge.
Follow Financial Restrictions
Because you will need to live without credit before, during, and after bankruptcy, it is important to create a realistic financial plan detailing your various monthly expenses. In other words, make a budget and stick to it. Make a list of your living expenses and what you reasonably pay each month. If you need help, a knowledgeable bankruptcy attorney can help you prepare this document, which will include costs like cell phone bills, utilities, rent, and food.
Avoid Reaffirming Your Debt Without Consulting Your Attorney
If you own a car or a home, you might decide to reaffirm your debt, which refers to agreeing not to discharge the obligation through the bankruptcy process.
If you do this, rather than discharging the debt in bankruptcy, you will be required to continue making payments on it. Before deciding whether to reaffirm a debt, speak with a skilled attorney to discuss the best solution for your particular situation.
File All of Your Tax Returns
For people who are struggling to pay their bills, it is common to delay filing taxes. Before filing for bankruptcy, however, it is important to file all of your necessary tax returns. A bankruptcy case is determined based on a person’s income as well as assets. Tax returns are often used to determine these details. By filing tax returns before filing for bankruptcy, you will enable the bankruptcy process to proceed much more smoothly. If you are navigating the Chapter 7 bankruptcy process, you will be required to complete the means test, which compares your income to the average income of households in the state.
To become eligible for Chapter 7 bankruptcy, your income must be less than the median income in the state. If your income is greater than the median income, you will then complete a second part of the Chapter 7 bankruptcy test that assesses whether a person’s disposable income is less than a certain amount.
Gather Copies of Your Credit Report
As part of preparing to file for bankruptcy, it is critical to obtain copies of your credit report, which will be compared to reports from creditors. This comparison helps to make sure that every creditor you owe is listed on bankruptcy documents.
If you do not include a creditor as you prepare for bankruptcy, it is likely that you will still owe the creditor once the bankruptcy case is complete. Additionally, when you sign bankruptcy documents, you are confirming that you have included each of your debts.
It is also important to gather together all of your bills so that this information can be provided to an attorney. Write down a list of anyone to whom you owe money if that person is not listed on your credit report or if you do not have financial records of this account.
If any of these accounts is likely to result in wage garnishment or a levy on your bank account, an experienced bankruptcy attorney might even decide to file an emergency bankruptcy petition.
Make a List of Your Assets
Besides reporting your income and debts as part of a bankruptcy case, you will also be required to report your assets. This means that you should list all of the property that you own as well as its value.
You will not be required to individually list less expensive items, but more expensive items will be listed individually. Even though it can be a challenging process to make a list of your assets, an experienced bankruptcy lawyer can provide you with advice and strategies to make this process much easier.
Know What Not to Do
There are a number of mistakes that you should be careful to avoid when filing for bankruptcy.
Some of the steps that you should avoid taking during the bankruptcy process include:
- Avoid providing inaccurate or incomplete information. As part of the bankruptcy process, you are required to provide complete and accurate details about your financial situation including your assets, debts, and income. If you are determined to have knowingly misrepresented these details, you could end up facing criminal penalties including fines and even imprisonment.
- Do not move assets. The bankruptcy process asks people to provide details about their financial situation and as a result, some people attempt to sell, transfer, or even hide assets before filing for bankruptcy. If you are determined to have made this type of behavior, you might be denied a bankruptcy discharge or even end up facing criminal penalties.
- Do not selectively repay loans. Any loans that you repay to friends, family, or creditors within 90 days of filing for bankruptcy might be considered preferential transfers. A bankruptcy trustee is permitted to file an adversarial proceeding to obtain the money from the person who was paid and will then disburse this money among creditors.
- Avoid filing for bankruptcy shortly before receiving substantial assets. If you are about to receive an inheritance, you should not file for bankruptcy. After receiving these funds, you may no longer need bankruptcy.
Determine Your Bankruptcy Timeline
When deciding whether to discharge a debt through bankruptcy, the court will review all of your financial activity within the six months before the filing. If there is any unusual bank account activity, it can but your bankruptcy filing in jeopardy.
If you are holding onto any funds for someone else, it is important to give your attorney these details. Moving, receiving a large sum of money, and many other strange activity can impact the length of time that the bankruptcy takes as well as your ability to discharge your debts at all.
Create a Recovery Plan
Bankruptcy will appear on your credit report. This does not mean that you will not be able to obtain any type of credit in the future. During the first months after filing for bankruptcy, many people discover that they are only eligible for secured credit cards. Several months later, however, people discover that their credit score begins to improve.
The best recovery plans should document each phase in the process as you begin to recover your credit history. If there is one, this should be the fun part of the bankruptcy process as you realize that you have a second chance at building a strong credit score.
Speak with an Experienced Bankruptcy Attorney
The bankruptcy process involves a number of complex issues. If you have questions or concerns about this process, reach out to an experienced bankruptcy attorney. Contact Attorney Melanie Tavare today for assistance.
"Melanie is the best she very responsive and helpful throughout the process everything was taken care of smoothly. If you are thinking of going through bankruptcy she is the best attorney for you. I will forever be grateful having the chance to work with her. She is very honest too."
"I can't thank Melanie enough for helping me through a challenging process and doing so with incredible knowledge, professionalism and tenacity! She went to great lengths to keep me informed, she responded quickly to my questions, and communicated in terms that I could understand. I highly recommend getting in touch with Melanie should you have the need."
"Choosing to work with Atty. Melanie has been one of the best decisions I've ever made. She was a very patient professional to work with and attentive while providing valuable solutions to all of my concerns. If you are searching for of an Attorney who is knowledgeable, transparent, and diligent - well that's Atty. Melanie."
"What I liked about working with Melanie was how prompt and easy to work with she was. She made the process clear and understandable with as little stress as possible. I would work with her again and recommend her to others."