Filing for bankruptcy can be scary and overwhelming, and it’s not an intuitive process at all. That’s why, if you’re on the cusp of preparing your first filing, you’re going to need help.
By taking these 4 steps before you head to court, you can protect key assets, minimize the harm to your financial future, and regain a solid footing going forward.
Evaluate Alternative Options
One of the most important things to do when you’re considering filing for bankruptcy is to make sure it’s the only feasible option for you.
Bankruptcy is a serious step and there are a lot of different pathways to debt relief. It’s important that you evaluate whether any of these other pathways are tenable options for you.
For example, debt settlement programs or even credit counseling can help some people manage their debt effectively. However, if you have far more debt than you could pay down even if it was reduced, then bankruptcy is likely to be your only choice.
Prepare For Means Testing
You have to be facing very particular financial circumstances to qualify to file for bankruptcy, and in order to determine whether you meet those standards, you’ll have to go through a process known as “means testing.”
Means testing involves having an independent trustee evaluate your debt, income, and spending behavior to ensure that you are both in dire financial straits and will not abuse the system. Beware of taking out new payday loans or maxing out the remaining balance on your credit cards in the weeks and months before means testing, as that can raise concerns.
Identify Key Assets
When you file for bankruptcy, you’ll have to liquidate a lot of your possessions to pay down your debts. Some property is exempt, at least up to a certain value – but how do you know what you’ll be able to retain? As bankruptcy lawyer Rowdy Williams explains, “Whatever your circumstances, when you file for bankruptcy, you’ll still need a place to live. You may still need a way to get to work. You may need certain tools in order to do your job. As a bankruptcy lawyer, then, one of my jobs is to help my clients determine what property is exempt and to help them fight for what they really need.”
Filing for bankruptcy can leave you in a tough spot, but it won’t put you out on the street.
One of the most harmful things you can do when filing for bankruptcy is to try to hide assets or transfer and gift property to keep it from being taken. This is illegal and can disqualify you from filing, leaving you stuck with unmanageable debt.
Additionally, you want to avoid taking money out of any retirement accounts in order to pay debts or put money aside for after your filing is complete. Your retirement accounts are an exempt property category and you’ll be glad you have that financial cushion down the road.
When filing for bankruptcy, you’ll want to ensure that you’re working with a trusted lawyer to get the best outcome. And remember, as stressful as this process is, filing for bankruptcy is about getting your life back on track.
You’ve had some hard times, but you’re being given a chance at a clean slate, and it’s important to take that seriously.