7 Steps to Take Before You Even Call a Lawyer
Feeling overwhelmed by debt is one thing; deciding to do something about it is another. The path to financial relief through bankruptcy can seem confusing, but taking a few key steps before you even contact an attorney can make the entire process smoother, more efficient, and less stressful.
Think of it as gathering your tools before starting a project. Being prepared not only saves time but also empowers you to have a more productive first conversation with your potential lawyer. Here is a practical, 7-step checklist to help you get organized and take control.
1. Stop Digging: Cease Using All Credit
This is the most critical first step. Once you are seriously considering bankruptcy, you must stop incurring new debt. This means putting away the credit cards, not taking out new loans, and avoiding cash advances. Continuing to rack up debt right before filing can be viewed as fraudulent by the court and could jeopardize your case. For instance, large purchases or cash advances made within 90 days of filing are often presumed to be non-dischargeable, meaning you would still owe that money after the bankruptcy is over. The goal is to stabilize your financial situation, not make it worse.
2. Gather Your Financial Documents: Create a “Money Snapshot”
Your bankruptcy filing will be a detailed picture of your financial life. The more of this picture you can assemble beforehand, the better. Start a folder (physical or digital) and begin collecting the following:
- Proof of Income: At least six months of pay stubs for you and your spouse (if applicable).
- Tax Returns: Your last two years of filed federal and state tax returns.
- List of Debts: Gather recent statements from all your creditors: credit cards, medical bills, personal loans, mortgages, car loans, student loans, etc.
- List of Assets: Make a comprehensive list of everything you own, including your home, vehicles, bank account balances, retirement accounts (401k, IRA), furniture, jewelry, and any other items of significant value.
- Monthly Expenses: Create a detailed budget of your household’s monthly living expenses (rent/mortgage, utilities, food, transportation, insurance, etc.).
This collection of documents will be essential for your attorney to determine your eligibility for Chapter 7 or Chapter 13 bankruptcy.17
3. Do Not Make Preferential Payments to Creditors
In the months leading up to bankruptcy, it can be tempting to pay back a loan from a family member or catch up with one specific creditor you feel strongly about. Resist this urge. The bankruptcy code is designed to treat all similar creditors equally. Payments of over $600 to a single creditor or any amount to an “insider” (like a relative) within a certain period before filing (90 days for general creditors, one year for insiders) can be classified as “preferential transfers.” The bankruptcy trustee has the power to “claw back” this money from the person you paid to redistribute it among all your creditors. This can create awkward and difficult situations, especially with friends and family.
4. Do Not Transfer or Sell Assets for Less Than Their Value
Similarly, do not try to hide assets by transferring them to someone else’s name or selling them for a token amount. Giving your car to your sibling or selling your valuable collection to a friend for $100 just before filing is considered fraudulent. The trustee will investigate your financial history, and such transfers can be reversed. More importantly, fraudulent activity can lead to a complete denial of your bankruptcy discharge, leaving you with all your old debt and a failed case.
5. Understand Your Goals: What Do You Want to Protect?
Bankruptcy is not a one-size-fits-all solution. Before you meet with an attorney, think about your primary objectives.
- Is your main goal to save your home from foreclosure?
- Are you trying to stop a car repossession?
- Are you primarily looking to eliminate unsecured debts like credit cards and medical bills?
Knowing your priorities will help your attorney advise you on the best path forward. For example, if saving your home is the top priority, a Chapter 13 repayment plan might be the most suitable option, as it allows you to catch up on missed mortgage payments over time.3
6. Take the Required Credit Counseling Course
Federal law requires that anyone filing for personal bankruptcy must complete a credit counseling course from an approved agency before their case is officially filed. This course is designed to review your financial situation and explore alternatives to bankruptcy. It can typically be done online or over the phone and takes about 60-90 minutes. Your attorney can provide you with a list of approved agencies. Completing this step early prevents delays in getting your case filed and receiving the protection of the automatic stay.
7. Research and Choose an Experienced Local Attorney
While bankruptcy law is federal, procedures and interpretations can vary by district and even by individual trustees. Choosing an attorney with extensive experience in your local bankruptcy court is crucial. They will be familiar with the local rules, the trustees’ preferences, and the judges. Look for a firm that specializes in consumer bankruptcy and offers a free initial consultation. This meeting is your opportunity to ask questions, understand your options, and ensure you feel comfortable with the legal team that will guide you through this process.
Taking these seven steps will put you in the strongest possible position to begin your journey toward a financial fresh start.
Ready to take the next step? Our experienced team is here to help you navigate the process with compassion and expertise. Schedule your free, confidential consultation today to discuss your situation and build a plan that works for you.
