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The decision to file for bankruptcy is a painful one. It is often preceded by months and even years of struggling to pay bills, unpleasant conversations with bill collectors, and being turned down for additional credit. Some end up in financial distress due to handling credit poorly. Others end up in financial distress due to a single catastrophic event such as a family illness that resulted in significant medical bills, or the primary household breadwinner losing his or her job. Whatever the circumstances, deciding to file for personal bankruptcy is not a decision that should be taken lightly. A consumer contemplating filing for bankruptcy should explore all options for resolving his or her financial problems. While it is a viable option that is appropriate for many in financial distress, it does require some forethought and preparation.
1. Determine what went wrong. Look at what caused the financial problem and how it can be avoided in the future. While bankruptcy will help resolve a consumer’s current financial predicament, in order to avoid ending up in a similar financial mess in the future, it is important for the consumer to understand how to manage finances and plan so that he or she does not have to again consider filing for bankruptcy.
2. Review all three credit reports. Reviewing all three credit reports will help the consumer get a true picture of all of his or her debts. There may be creditors who have not contacted the consumer in months or even years. That does not mean that the debts have magically disappeared. They are still there and should be included in the list of debts included in the bankruptcy filing.
3. See a credit counselor. One of the requirements of filing for bankruptcy is that the consumer must first receive credit counseling from an approved credit counselor. The counseling will include an assessment of the consumer’s financial situation, a review of alternatives to bankruptcy, and setting up a budget for the consumer. Once the credit counseling is completed, the consumer will receive a certificate that is to be included with the bankruptcy filing.
4. Learn about bankruptcy. A credit counselor and bankruptcy attorney, as well as consumer information issued by the government are vital resources to help consumers understand all of the rules related to filing for personal bankruptcy. Once a consumer understands the rules and understands his or her personal financial situation, the consumer will be able to make an informed decision as to the best course of action. For example, it is important to know which assets are protected from creditors, the statute of limitations on various types of debts, which debts are not dischargeable, or if a mortgage loan modification is an option.
5. Consult an attorney. Bankruptcy rules are complex. The ramifications of filing for bankruptcy are serious. Before filing for bankruptcy it is smart to consult with an experienced bankruptcy attorney who understands not only the intricacies of bankruptcy law but who also will be able to educate you on alternatives and the long-term consequences of bankruptcy.
Filing for bankruptcy is not a cause for shame. There is, however, a small subset of consumers who have filed for personal bankruptcy multiple times. Some of these people are celebrities who earn millions. If the reason for their financial problems is that they continue to live beyond their means, should they be permitted to file for bankruptcy second or third time?
Andrew Mounier is a passionate member of the End Ecocide movement, an avid legal blogger, author and Content Engineer.