What To Consider Before Filing Bankruptcy

Declaring bankruptcy should be the absolute last resort to keeping your financial ship from sinking. Although it's an emotionally difficult choice to make, the process is relatively simple. You provide the courts with information detailing your income, property, debts and creditors, and the court sends a notice to the creditors to prevent further collection efforts.

Steps

Before you file

1 Read Get Out of Debt.

2 Explore the alternatives to bankruptcy, which include negotiating with creditors to reduce or skip some monthly payments, finding a financial manager, refinancing your home if it has some equity in it, or seeking the help of nonprofit credit counseling groups.

3 Consider filing for bankruptcy if you're paying only minimum amounts on your bills, you can't budget yourself out of debt within five years, you've been notified of foreclosure on mortgages or loans, or you've had a severe financial setback-losing your job or major client(s), a divorce or a costly illness.

4 Understand the serious repercussions of filing for bankruptcy. It is reported on your credit for up to 10 years, and it will take about three years after your bankruptcy to re-establish your credit rating. A poor credit rating can make it tough for you to get a mortgage (or result in higher interest because you are deemed a bad credit risk), to get a small business loan, and to get a car loan, and it's hell if you're involved in divorce proceedings and want custody of your kids. Overall, it should be your last resort.

5 Understand what debts bankruptcy can't get rid of. These include alimony, child support, recent back taxes, student loans, recent large purchases, and fines or penalties of government agencies, as well as debts resulting from malicious and willfully fraudulent acts.

6 Hire an attorney you can trust to help you through the proceedings of bankruptcy. Fully understanding the situation will make it easier and less painful for everyone involved.

7 Find a U.S. bankruptcy court at www.uscourts.gov.

After you file

1 Open a checking or savings account right away. Future lenders will want to see that you are capable of handling your money responsibly.

2 Get a credit card to establish some credit. Cards for gas stations are among the easiest to obtain.

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