Filing for bankruptcy can be a useful resource for debtors who are having immense difficulty getting out of a deep financial rut. However, many people have misconceptions about what filing for bankruptcy really means. A common false belief is that by filing, all of your debts vanish — when in actuality this isn’t the truth for a large number of applicants. There are also six different bankruptcy chapters, in which you will need to decide which is the most suitable to apply for.
Before you file a bankruptcy petition, there are a few things you should consider doing to ensure that this next step is going to be right for your current financial situation.
#1 Debt Counseling and Management
The first step is to meet with a bankruptcy attorney about whether filing is the right choice for you. An attorney can assess your financial situation and help you decide whether managing your debts better is a possibility, or whether filing for bankruptcy really is the best choice for your financial future. Your attorney may have you consider what debts to pay back first, and how your income will be utilized to alleviate certain debts. Having a legal professional work with you can be useful in other ways too, by helping you during the bankruptcy filing process.
Depending on what chapter you apply for, if you ultimately decide that is the right path for you, you may need to provide financial documentation to both your attorney and the court:
- Name, address, last four digits of social security number, and any other names you have used within the past eight years
- Proof of income, such as pay stubs, auto deposits, statements from your employer, and most recent tax return
- A list of monthly expenses, including utilities, insurance, household expenses, and rent/mortgage
- A list of your current creditors and how much money you owe each
- A list of assets, the property you own, and how much the property is worth
- Other financial documentation as requested
#2 Debt Consolidation
A few strategies for successful debt consolidation is to avoid opening new credit cards just to increase how much available credit you have, to keep balances low so you can avoid high-interest rates, pay the priority debts on time, and manage your credit card use responsibly. Your attorney can work with you and your creditors to create a debt consolidation plan. However, it is possible that you and your attorney will decide that filing for bankruptcy is the better option versus debt consolidation.
#3 Debt Settlement
The final approach in attempting to remediate your debt challenges and avoid filing for bankruptcy is to negotiate with creditors to reduce the amount you owe in exchange for a payment plan that you can actually commit to paying off. Sometimes, creditors are willing to work with debtors and accept a deal because they would rather get some payment from a debtor than none at all, and will no longer have to continue spending time and resources pursuing the debtor for overdue payments.
If you have questions about a case call an attorney, like a Bankruptcy Law Firm Memphis, TN, today.
Thank you to the experts at Darrell Castle & Associates for their input into bankruptcy law.