How to Get Your Bankruptcy Started

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If you are considering bankruptcy, follow a few steps to be as prepared as possible. You need to get a credit counseling certificate, and then find a reputable lawyer. You can also work toward the best outcome possible by paying down bills that cannot be discharged, getting a life insurance policy and contributing to a pension plan. Consider the steps to take to get started.

Credit Counseling

You need to attend a credit counseling session held by an approved provider before declaring bankruptcy. Here you will talk to a credit counselor about your financial situation to determine whether bankruptcy is your only option. Since it should only be used as a last resort, it is important to learn alternatives before filing. You can complete the session in person, online, or by phone or mail. You will get a certificate, which is required for you to start bankruptcy proceedings.

Pre-Bankruptcy Planning

There are ways to prepare for bankruptcy that will put you in the best position possible when it comes to finances. For example, know what debts can be discharged and which ones you need to continue paying. If you have certain assets you wish to keep, such as a house or car, you need to keep payments current. To generate enough cash to do so, sell some assets that you do not need.

Protected Assets

Note that retirement accounts, such as IRAs and 401ks, are usually exempt from bankruptcy, meaning you can keep the money in them. Therefore, it is beneficial to put any extra cash into such accounts before bankruptcy. Consider getting a life insurance policy, as well, since it is also exempt.

Non-Dischargeable Debts

In addition, start paying down assets that you likely cannot get discharged, such as taxes. Find out how much of your house is exempt through your state's homestead exemption for your primary house. If most or all of it is exempt, consider putting extra funds into this asset. Remember that any funds that are considered extra in your checking or savings accounts will go toward creditors you owe. You cannot hide extra money during bankruptcy without breaking the law, but you can pay down certain debts with it.

Find a Good Lawyer

You are advised to consult a bankruptcy lawyer before filing. Most attorneys offer a free initial consultation so that you can get to know them and find out whether you are eligible to file bankruptcy. Schedule a few of these meetings until you find an attorney willing to take your case for a fee you can afford.