Need to Get Rid of Debt? Steps to Take Before Filing Bankruptcy

When all the normal steps to get rid of debt haven’t worked or aren’t available, declaring personal bankruptcy may be the only way to tackle serious debt problems. However, before filing bankruptcy there are a number of important steps that need to be taken. Since the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act 2005, getting out of debt could potentially be more difficult for some people than others. If filed under chapter 7 in the last 8 years, it is not an option.

Get Rid of Debt with an Alternative to Bankruptcy

Before filing for bankruptcy, it is important to seek advice and guidance from a qualified credit counselor as it may be possible to bridge any income gap through better budgeting. Also, a debt settlement program provides a viable bankruptcy alternative if some disposable income is available to offer creditors. Getting out of debt is achieved through a general debt reduction and a monthly payment to creditors over a period of up to 36 months. However, it isn’t legally binding so the debtor won’t be afforded the same court protection.

Learn the Process Before Filing Bankruptcy

Although a bankruptcy attorney will deal with many of the unknowns, finding out how to file chapter 7 bankruptcy is an important step to take before proceeding. Declaring personal bankruptcy under chapter 7 – also known as liquidation bankruptcy – can get rid of debt in just 4 months. However, the laws were reformed in 2005 so not everyone can or will now qualify. If income is above the state median or non-exempt assets need to be protected, chapter 13 may be the more appropriate option. This involves making a payment each month to a court-appointed trustee for a 3 or 5-year period.

Accurate Records Needed to Pay Off Debt

In order to get rid of debt with chapter 7 bankruptcy, it is necessary to compile as much relevant financial information as possible. This is not limited to, but includes:

  • Wage slips for the last 6 months.
  • The last two tax returns.
  • A full breakdown of any debts – secured and unsecured.
  • Any recent creditor correspondence.
  • Details of any property owned.
  • Income and expenditure information.
  • Proof of identity.

Get a Credit Report Before Declaring Personal Bankruptcy

It is important to document all relevant debts before filing bankruptcy. Whilst most people know what they owe, there may be a few surprises that have been forgotten. Request a free credit report from Experian, Equifax and TransUnion and check each report to see who is owed what and how much. Each credit reference agency holds different information. This thorough process ensures that all relevant debts are eliminated as failing to include an old credit card debt that hasn’t lapsed will lead to the return of the same problems.

Getting Out of Debt with Chapter 7 Bankruptcy

Getting out of debt is often ‘advertised’ as providing a fresh start, but it remains a very stressful time for families. Whilst it’s possible to pay off debt in just 4 months, many people delay filing for too long. It is necessary to have a one-hour credit counseling session through a U.S. Department of Justice approved agency. The cost is normally just $50. Hiring a bankruptcy attorney will also cost $2,000 to $3,000 so there are a number of important financial considerations.