The decision to declare bankruptcy is not an easy one. However, if you’ve been having creditors call and otherwise contact you non-stop for payment you don’t have, bankruptcy may feel like your best option. It’s a complex process, but bankruptcy will help you get out from under that mountain of debt. Below are some of the first steps you should take when you decide to declare bankruptcy.
Decide If or Chapter 7 or 13 is the Right Choice
You have two main choices for bankruptcy. Chapter 7 bankruptcy involves keeping essential assets but having to sell or turnover all other assets to the bankruptcy trustee to partially help pay your creditors. You’ll usually get to keep your home and your car, though luxury assets may be liquidated to pay creditors. Chapter 7 helps low income and medium households wipe out credit cards, judgments, medical bills, and payday loans.
Chapter 13, sometimes called the wage earner’s bankruptcy, is for people who have a steady income but whose debt exceeds what they can pay off in the current circumstance. To qualify, your debts have to fall within a certain range for both unsecured debt, such as credit cards, and secured debt, such as mortgages. Your income level will determine if you pay for three or five years. Chapter 13 works well to fix late payments on cars and houses so that you can keep them.
If you feel you fall within the above parameters, Chapter 13 may be a good method for you to get back on track financially.
Cancel Automatic Payments
Many people set up automatic payments with credit cards or cell phones for convenience. However, all of those debts will be covered under your repayment plan. So as soon as you determine that Chapter 13 is the best course of action for you, cancel your automatic payments, including any subscription services.
You may be concerned you’ll start getting that many more calls or missives from creditors. However, as soon as you file your bankruptcy papers, the court will file an automatic stay. This stay legally prevents creditors from making any attempt, such as phone calls, to collect the debt.
If they do call, tell them you’ve filed for bankruptcy — have your case number handy because they may need it.
Collect Your Documents
With Chapter 13 bankruptcy, you have to get a lot of documents together. First, you need up-to-date tax returns and tax payments for the last two years. You also need proof of income, such as pay stubs or a letter from your employer, dating back six months. You must also provide information about all accounts, including bank and savings accounts.
Additionally, you’ll need proof of other assets. These assets can include material things, such as your house and car. They can also include any other income, such as alimony or regular inheritance payments. Finally, you need a comprehensive list of all your debts. Only the debts you provide will be covered by the bankruptcy, so you’ll be on the hook to other creditors if you don’t include them.
Hire a Bankruptcy Lawyer
At about this stage in the process, you may start to get overwhelmed. Many documents and requirements, such as credit counseling, go into a petition for Chapter 13 bankruptcy. What’s more, the courts can deny a petition for bankruptcy if the steps weren’t followed correctly.
Bankruptcy attorneys have the experience to follow all the steps. They can help you evaluate your property and choose the best exemptions. Those exemptions relate to your personal property that you may keep during the bankruptcy.
One of the most valuable services they can provide is help with the repayment plan. It includes the list of priority debt, secured debt, and unsecured debt. The repayment plan is a comprehensive detailing of how you’ll make payments over three or five years, depending on your income. At the end of the plan, any remaining debt will be discharged.
Take the above steps to help your Chapter 13 run more smoothly. When you’re ready for legal advice, call Wiesner & Frackowiak, LC.