Even the most careful planners can lose control of their finances. It could be due to overwhelming medical bills, an unexpected job loss or a spouse with out-of-control spending habits. At some point, it becomes clear that filing for bankruptcy is the most realistic solution.
In the US, bankruptcy is a legal process to relieve debts you cannot repay. Filing for one has advantages, such as triggering an automatic stay, which means your creditors must immediately halt their collection efforts.
1. Know your options
The first step is to educate yourself on which bankruptcy chapters to file. Two of the six types of bankruptcies are Chapter 7, which means selling your items, and Chapter 13, which does not.
Consult with an experienced bankruptcy lawyer to better understand the chapters’ implications for your situation. This is important to know to avoid filing under the wrong chapter.
2. Gather financial documents
Do you have a clear picture of your financial situation? If you do not, start collecting financial documents such as:
- Recent pay stubs
- Tax returns
- Bank statements
- Credit card reports
- Medical bills
- Any loan or mortgage agreements
- Any letters from your creditors
Complete and organized documentation allows you to provide an accurate picture of your financial standing in bankruptcy court. Further, avoiding incurring new debt, like high-interest loans or large credit purchases, is best when you have decided to pursue bankruptcy.
3. Complete credit counseling course and bankruptcy forms
You are required to take a credit counseling course before you can file for bankruptcy. While not for free, you may be able to accomplish it online for as little as $10. Make sure to collect your certificate of completion.
Afterwards, you can proceed with filling out the bankruptcy forms, which are mostly the same across the country.
Bankruptcy application is a lengthy process
However, this is just the starting point. The application process can be complex after these initial steps. Having an attorney can be advantageous in ensuring you are well-positioned to navigate the legalities of bankruptcy and achieve a fresh financial start.
