My Road Back From Bankruptcy

Posted on: 9 April 2015

Filing for bankruptcy requires careful planning. And believe it or not, decisions you make and actions you take right beforehand could impact your case. To ensure you give yourself the best possible chance for a good outcome, here are four things you must do before making a final decision.

Take the Means Test

Federal laws work to not only protect you but also to prevent those who make a lot of money from filing bankruptcy. One of the ways they accomplish this is by requiring most potential filers to take a means test, which compares your income to other families in your state. The US Census Bureau collects this information every year, and you can take a look at how your own income compares to others before taking the test.

The test isn't meant to shy you away from filing. It's simply an important first step to take. Generally speaking, if your income falls below the median income for your state, you should be eligible to file Chapter 7. For those who end up filing Chapter 13, how you compare to the median income in your state will be a factor in determining your monthly repayments and how long you can expect your repayment plan to last. 

Receive Credit Counseling

Before filing for bankruptcy, you must go through credit counseling with a government-approved agency. And this typically needs to be completed within 180 days of the file date. Once you finish the session, you will receive a certificate of completion that must be filed within 15 days of the bankruptcy paperwork. 

At your credit counseling session—which can be done online, over the phone, or in person—you and the counselor will go over your budget and discuss your debts as well as income.

The counselor will then take a look at all the figures and determine if there is a way other than bankruptcy to get your debts paid off. If it's determined that bankruptcy is the only option, they will let you know.

The good news is if the agency comes up with an alternative to bankruptcy, you are not required to follow their recommendations. But it's important to understand that, ultimately, the courts might look more favorably upon the agency's recommendations and push you towards a Chapter 13 if it's a better fit.

Some credit counseling agencies are free, but others might have fees based on a sliding scale. Be sure to discuss this ahead of time so you know if you'll be charged.

Take a Look At Recent Financial Decisions

There are certain financial "moves" that could affect the outcome of your case, especially if these things are done right before filing. For example, suppose you own a car, and you're worried about losing it in the bankruptcy process. In an effort to prevent this, you transfer the title over to your eighteen-year-old son. This sort of behavior serves as a red flag to the courts, and they could deny your request for relief.

Other things that should be avoided include moving large sums of money into someone else's bank account, making extravagant purchases with a credit card, paying off one of your preferred creditors, or attempting to hide any of your assets.

If you have done any of the above, it's not the end of the road. You simply might have to wait a while before filing.

Meet With An Attorney

You don't have to hire an attorney to help you with your bankruptcy case, but having a bankruptcy attorney on your side can benefit you tremendously. In fact, if you take a look at the stats in Los Angeles, having an attorney can help you get your debts discharged 95% of the time as opposed to 60% of the time without one.

A good attorney will help you understand your rights, discuss whether you qualify for Chapter 7 or 13, help you find a credit counseling agency, let you know what will happen to your property and assets, inform you of what kinds of debts are not dischargeable (such as taxes, court fines, student loans, child support, etc.), and inform you of what to expect once your debts are discharged, including how your credit score will be impacted.

The fees for filing are $310 and $335 for Chapters 13 and 7, respectively. Fortunately, many courts will allow you to pay in installments if you can prove a hardship. Attorney's fees vary widely from state to state, but currently the national average is about $1,250. You can generally expect to pay a little less if you live in a small town. 

Sometimes filing for bankruptcy is the best choice for your financial future. If you're thinking about taking that step, make sure you keep these four things in mind and include them in your plans.