Important Information for Those About to File for Bankruptcy

Claiming bankruptcy is a major financial decision that should not be entered into without full knowledge of the process and its consequences. If you are considering filing, there are some things to consider that may make the process smoother for you.

• Stop making any credit card payments. These debts will be discharged and you are only throwing your money away. It is possible that if you bought an expensive item like jewelry with a credit card, the company may have a security interest in the item. If so, you have the option of continuing the payments for the item only, returning it, or paying its market value.

• Keep paying your student loans and tax debt unless your attorney advises you otherwise. Student loans can only be discharged with a strong showing of extreme financial hardship, and most tax debts are not dischargeable absent certain conditions.

• If you have a second mortgage, you should consider a Chapter 13 if you can keep your mortgage payments current. You can strip a second mortgage under this chapter if it is a separate or distinct lien.

• Do not make any other use of your credit cards before filing. Using the cards or taking out cash advances within a certain time before filing may show evidence of fraudulent intent.

• If you have an attorney but have not yet filed, call or inform your creditors that you are filing, the chapter being used, and your attorney’s name. They will stop contacting you.

• Know that attorney’s fees can run as high as $2,000 or more. If you consult with a bankruptcy attorney and advise him or her that the fees are too high, you may be able to negotiate a lower fee. Also, a Chapter 13 filing allows you to pay your attorney over time unlike a Chapter 7. You can also look to legal aid offices or your county bar association for free or low cost representation or assistance. Some urban areas have organizations to help low income debtors with bankruptcy.

• If there is joint debtor or another person on an account, that person will still be obligated for the debt.

• You cannot file again for 7 years. If you think a major catastrophe is looming or foreseeable, you may want to wait.

• Your credit may not get all that much worse. If you are claiming bankruptcy, chances are that your credit is poor and filing for bankruptcy will not make it worse. Also, you can still qualify for an FHA loan about two years after your discharge from a Chapter 7, and one year after a Chapter 13.

• Do not take money out of a retirement account to pay for bills and then file. The funds in these accounts are exempt up to one million dollars, but are no longer exempt once they are withdrawn.

• Seek the advice of a bankruptcy attorney early on before filing. He or she can advise you if there are other options, which chapter is best suited for you, and what you can do to prepare for it.