The goal of bankruptcy is consistent - to offer a path of relief to individuals facing overwhelming debt. Where the inconsistencies arise is in the level of benefit each person garners from this experience. How helpful bankruptcy is in helping you resolve your financial concerns has everything to do with your preparation. Ensure you're pre-planning for bankruptcy.
Lock Down Your Credit Cards
If you're in debt and still using credit cards, now is the time to stop. Each time you swipe your card during a transaction, remember that you are adding to the amount of money you owe and that you are also putting your bankruptcy in jeopardy. Every person that files for bankruptcy does not do so with good intentions.
There are those individuals who amass a great deal of debt with the sole purpose of filing bankruptcy. If there are a high number of charges on record just before you file, the court could lump you in with this unsavory group and assume you're attempting to fraud the system.
Bankruptcy fraud comes with severe consequences, including jail time. Avoid taking out any new loans during this preparation period as well.
Learn What You Owe
Filing bankruptcy isn't just about debt relief; the process is also about taking control of your finances. The only way to do this is to know exactly what you owe. Start your research by requesting a free credit report from each bureau, as the information listed on each report is not always the same.
Identify any discrepancies contained in the report and follow the steps to have these accounts removed before you file for bankruptcy to ensure you aren't paying for a debt you don't legally owe. Notate the interest rate for each of these accounts to see which accounts are costing you the most money.
Create a spreadsheet that lists the total value of each account. You should also add any recurring expenses not listed on your credit report, such as utility payments, to this document.
Let Go of Unnecessary Expenses
Now that you have this spreadsheet available to you, now is the time to start letting go of any unnecessary expenses. A common misconception is the idea that bankruptcy is automatic - if you have debt and you file, the request is automatically approved. All applicants must pass a process known as a means test.
In short, this process rates how much disposable income you have and weighs this against your ability to repay the debt you owe outside of the bankruptcy system. Consider an applicant with a hefty coffee shop habit that takes several vacations a year, has a gym membership, and a host of other non-essential expenses, for instance.
If this person is filing for bankruptcy because they can't support these habits and pay down their debts, they will have a difficult time passing the means test and qualifying for bankruptcy.
Partner With a Professional
Bankruptcy is a solution, but it is not the only solution. A decision to file is one that will have major effects on your life in both the short and long-term, so it should always be approached wisely. Before filing bankruptcy paperwork on your own, sit down with a professional, such as a financial advisor or bankruptcy attorney, to discuss your situation.
After reviewing the debts you owe and mitigating those unnecessary expenses, you may find that you're able to come up with a suitable repayment plan on your own.
Take steps to plan for a successful bankruptcy filing. At Flowers Law Firm, we are here to help you through the preparation phase and beyond.