The decision to file for bankruptcy never arrives just out of the blue. Good and thorough preparation is everything in terms of chances for success in this process. Not only filing for bankruptcy takes times and your psychological resources, but also it requires you to spend money either for counseling or for the bankruptcy lawyer, or for court fees, and other expenses. Here is the list of things you must do (or do not do) prior to filing for bankruptcy.
1. Collect all possible documents related to your income
You should gather all official documents that confirm your income for the past six months (at least). Take a note that you will need to include all sources of income, whether it’s a full-time job salary or a part-time job payments. The more official papers you will manage to collect the more chances your petition will be approved with no issues (like delays, additional investigation by Trustee, etc.)
2. Stop paying utility bills
If the decision about bankruptcy is taken, it will be reasonable and wise to stop paying utility bills, as in fact, you are a bankrupt already. Those bills will simply add up to your total amount of debt. Instead, you should better save some money that you will need to pay for a good bankruptcy attorney.
The average pricing for a bankruptcy lawyer’s service is about $1.500-$2.000, but it will pay off, as an attorney makes the whole process easier, faster, and more likely to succeed. Moreover, if you file under the Chapter 7, you will be withdrawn your property in favor of creditors. A really good attorney can widen the list of your exempt property (the property which is allowed to be kept by the debtor) significantly.
Without the attorney chances are the debtor will stay with the minimum list of necessities for further living.
3. Make sure you’ve included into list your tax returns
Your tax returns must be included in the list of your income, otherwise, if the fact you’ve hidden your tax returns will be revealed, your petition will be dismissed and you will be charged a fee for fraudulent information. The thing is that for the U.S. bankruptcy court it is not important whether you provide misleading information non-intentionally (due to lack of knowledge, for instance) or on purpose. You will be punished anyway.
4. Get your credit counseling
According to the recent changes in the current U.S legislation, all debtors who are about to file for bankruptcy under the Chapter 7 must undergo a Credit Counseling course at one of the authorized credit counseling agency. Some agencies provide counseling for free, but some charge a certain fee. If you will file avoiding credit counseling, you will get a petition refusal guaranteed.
5. Call to a bankruptcy attorney for a first free conversation
Even if you are going to file “pro se” – means on your own, without the lawyer’s assistance, you will make yourself a great favor by calling to a professional bankruptcy attorney for a basic advice. Many law companies offer the first consultation with a bankruptcy attorney for free, so you may use this opportunity.
6. Check up your self-employment income
If the money you have received from self-employment activity is not money that you have hidden from taxes, you should include it in your income documents. By not doing this you put yourself under the threat of denial from the bankruptcy court due to fraudulent information. The court will take it as your intentional attempt to downplay your income in order to qualify for Chapter 7, while you are financially potent enough for filing for reorganization bankruptcy (Chapter 13).
7. Avoid taking cash advance on your credit card
Right before filing you should avoid taking any type of new loans, especially when it comes to loans with using your credit card (cash advance). This act will be discovered by the court as it is obvious you take the loan in hopes it will be written off according to the Chapter 7. You should better ask your bankruptcy attorney for an advice about the optimal period between your most recent unsecured loan and filing.
8. Make a list of all your assets without hiding anything
In bankruptcy forms, you will be asked to list all the property and assets you own. Don’t make a mistake that many do by trying to hide some of the assets by making your property over to your relatives or spouse. When you will be appointed a Trustee, he will investigate your financial situation and find the fact of assets transferring before the filing.
This will inevitably lead to your petition dismissal and a penalty, along with more severe consequences because hiding assets is considered a bankruptcy fraud – a sort of criminal activity.
9. Complete a Means Test
Means Test is a complicated algorithm of calculating and comparing your income and overall financial situation to the average individual (in your state). This test shows whether you have enough means to repay at least a tiny part of your debt after paying your obligatory monthly expenses (food, Insurance, utility bills, daily necessities, etc.). If your means are below the certain ceiling – you can qualify for Chapter 7, if not – you should consider filing under Chapter 13.
10. Move your money from a bank where you borrowed funds
It’s important to know that if you have a bank account in a bank that lent you money, this bank may withdraw your funds from your account as soon as it finds out you file for Chapter 7 bankruptcy.
Just prior to filing – close your account and withdraw money and open a deposit account at another bank.
If you file under Chapter 13 – such moves do not make any difference, as you claim you will repay the debt but later in the future.