Read as much information on bankruptcy as you can. Bankruptcy is a huge decision, so you should learn as much as you can about the process, and about the pros and cons of filing (there are plenty of both pros and cons).
PRO TIP – don’t ask questions to your friends or anyone who isn’t a lawyer, and a lawyer who works with bankruptcy every day.; there are a lot of inaccurate rumors regarding bankruptcy – don’t fall into this trap.
Step 2 — Hire a Bankruptcy Attorney Who You Trust and Feel Comfortable With
Schedule a free consultation with a local bankruptcy attorney in the Ventura, Oxnard, Santa Clarita or Port Hueneme area (hint, hint – I offer free consultations in all these areas, and I will come to you). We can even do our consultation on the phone. Frankly, I prefer it this way – you can be home and comfortable, and I think it’s arrogant for attorneys to make clients come into their offices. You don’t care if I have a nice secretary (I don’t), or nice furniture (I don’t).
At the consultation, the bankruptcy attorney (me!) will gather necessary information regarding your income, household size, and your monthly expenses so they can get a good idea of what your budget looks like.
Your bankruptcy attorney will also ask you to provide details about any property or assets you own, like your house, cars, boat, stocks, life insurance policies, savings, or other investments.
Your lawyer will also want to know about your financial history; (whether you’re being sued), and whether you have owned any property in the past that you have recently sold or transferred.
Your bankruptcy lawyer will then advise an appropriate course of action. If your attorney feels bankruptcy is right for you, he will go over the options available under the Bankruptcy Code and help you determine what Chapter is a better fit for you. If you decide to hire the attorney to represent you, you will sign a retainer agreement which will detail the attorney feeds and your rights and responsibilities.
Step 3 — Pay your Bankruptcy Attorney Fees
In a Chapter 7 bankruptcy, your bankruptcy attorney’s fees typically must be paid prior to the filing of your case; otherwise the attorney’s fees would be eliminated in the bankruptcy with all your other dischargeable debts. Many bankruptcy attorneys, me included, offer payment plans for the balance.
In a Chapter 13 bankruptcy, the majority of the bankruptcy attorney’s fees are typically included in your monthly repayment plan and aren’t required prior to filing your bankruptcy.
Step 4 — Review Your Bankruptcy Petition
Your bankruptcy attorney will prepare your bankruptcy petition once your fees have been paid. In addition to using the information he or she gathered at the initial consultation, your attorney may require additional documents to prepare your petition (paystubs, tax returns, a credit report, an appraisal of your home, etc.).
Once the attorney has completed the bankruptcy petition, you will be given a copy to review with your attorney or own your own. When reviewing your petition, make sure all your personal information is correct – especially your name, address and social security number. You also want to make sure all your debts are listed on the petition. It will cost you extra money to add a bill that wasn’t included on the filed bankruptcy petition.
Step 5 — Get Your Credit Counseling Certificate
Before your bankruptcy is filed, you must take a brief, on-line credit counseling course from an approved non-profit credit counseling agency. The counseling class is typically less than two house, and is very inexpensive. The course can be via telephone, in person, or online. If the course is not completed within the 180 days prior to filing your bankruptcy, your case will be dismissed.
Step 6 —Your Case is Filed!
I then file your petition with the Bankruptcy Court officially beginning your bankruptcy.
The filing of your bankruptcy will also commence the automatic stay which prohibits and protects you from collection actions by your creditors. This is a very powerful remedy, and keeps all of the harassing collectors from contacting you, or in any way attempting to collect on your debts.
The Bankruptcy court will also assign a Trustee to administer your case at the time your case is filed, and your 341 Meeting of the Creditors will be scheduled.
Step 7 — Complete the Debtor Education/Financial Management Course
After your case is filed, you must complete your second counseling class. The second briefing is called the Debtor Education or Financial Management Briefing. This course is tailored around managing your personal finances after bankruptcy. The class takes approximately two hours and can be done over the telephone, in-person, or online. In a Chapter 7, you must complete this course within 60 days after your 341 Meeting. In a Chapter 13, you must complete your course before the end of your repayment plan.
Step 8 — Attend Your “341 Meeting”
You are required to attend a meeting with your assigned bankruptcy Trustee and testify under oath as to the accuracy of your filed petition.
The “341 Meeting” is held approximately 30-45 days after the filing of your bankruptcy.
“341 Meetings” are usually relatively short and painless, and it is unlikely that any of your creditors will actually attend the meeting, even though it is also referred to as a “Meeting of the Creditors”. Your bankruptcy attorney will be present at this meeting to represent and assist you.
Per the Bankruptcy Code, all required Trustee documents must be tendered to the Trustee by you or your attorney 7 days prior to the 341 Meeting. These documents vary by Trustee and jurisdiction, but will usually include your last two years of tax returns and 60 days of paystubs.
Step 9 — Receive Your Discharge
In a Chapter 7 bankruptcy, you receive your discharge after your Debtor Education Briefing has been completed and as soon as the 60 day time period for your creditors to object to discharge expires.
In a Chapter 7 bankruptcy, your discharge papers usually arrive 2-3 months after your “341 Meeting”.
In a Chapter 13 bankruptcy, you receive your discharge after your Debtor Education Briefing has been completed and you have made all required Chapter 13 Repayment Plan payments.
Once you have received your discharge, all your creditors are prohibited from EVER collecting on the debt you eliminated in your bankruptcy.
Step 10 — Rebuild your Credit
Once your bankruptcy has been discharged, concentrate on rebuilding your credit. Below are 12 helpful hints on improving your credit score and obtaining a happy financial future.
Check your credit report on a consistent basis Review your credit report often to ensure all of the information is accurate.
Keep your House and Car If you choose reaffirm your mortgage and auto payments, you will get credit for keeping the loan, and timely future payments on large obligations go a long way to improve your credit.
Apply for a credit card Obtain either a secured or unsecured credit card and repay the balance in full each month. This helps establish a pattern of timely payment history and improves your credit.
Pay everything on time Most importantly, make sure to use your fresh-start wisely and make all your payments on time each and every month. Filing bankruptcy will give you a second chance, but it’s much more difficult to improve your credit if you repeatedly fall into financial problems.
Open a checking/savings account Maintaining a checking or saving account in good standing shows your creditors that you are successfully managing your finances. Building a relationship with a local bank or credit union may also lead to a loan in the future.
Save If feasible, start putting away a percentage of your monthly income into a savings account. This money can be used as a down payment or as collateral for a future loan.
Get a cosigner You are much more likely to get lower interest rates and better loan terms if a family member or close friend cosigns for you.
Track your expenses Track all of your expenses for 2 complete months and you should get a good estimate of your spending habits. You may be surprised at what you find and might easily be able to pinpoint unnecessary monthly expenses that can quickly add up.
Create a budget After you’ve tracked your expenses for 2 months, create a budget by deducting your monthly expenses from your monthly income. If your budget does not show enough disposable income to meet your financial needs, you’ll need to determine how to either lower some of your expenses of find additional sources of income.
Spend control Sticking to your budget is critical to your financial well being. Consistently spending more than your budget allows is a recipe for debt. Avoiding charging and strictly following your budget will prevent overspending.
Create an emergency fund: Create an emergency fund in an interest bearing savings account. Emergency funds are essential because no matter how good your budget and spending control is, there are some things that you can never plan for. These emergencies can be devastating to your credit if you don’t have readily available cash.
Fund Your Retirement: Once your emergency fund is established, start contributing towards a retirement plan or an IRA.