Bankruptcy is a major step with long lasting consequences for our financial future. It is normally the last option that we consider so that by the time it becomes our only option we are in terrible financial shape. Bankruptcy is a legal way to get time to put our finances back on track and to allow us to protect certain assets from our creditors. The normal process includes:
- Consulting a bankruptcy lawyer to work out the best strategy for your particular situation.
- File bankruptcy documents as soon as possible once the decision is taken to protect assets from seizure by creditors.
- Completing the educational and credit counseling sessions mandated.
- Finalizing the bankruptcy proceedings.
The process can be expensive and can cost a minimum of one thousand dollars to three thousand dollars. If you haven’t got the funds to pay this because of your financial situation then the temptation can be to look for a cheaper option. These options need to be carefully considered because bankruptcy law is complicated and your creditors will exploit any mistakes you make to obtain as much from you as they can.
Filing For Bankruptcy by Yourself
This is becoming much more common as online resources and cheap fee for service paperwork filing companies urge people to do it themselves. There are some consequences that you need to be aware of if you are thinking to file bankruptcy documents by yourself.
- Incorrectly filed documents will mean the proceedings are dismissed and that creditors can continue to pursue you and your assets.
- You will need to respond to any motions initiated by your creditors by yourself.
- If you have significant property and assets it is very likely that creditors will attempt to have them exempted from bankruptcy protection.
- Creditors can seek to have the money owed to them exempted from the bankruptcy proceedings.
It is important to understand that document filling services cannot offer legal advice. Even if they do make suggestions, which they should not be doing, you have to accept the consequences when you file the documents and appear. The local jurisdiction may have slightly different rules so be very aware what you are committing to when you sign the forms and file bankruptcy on your own.
You should investigate if there are bankruptcy legal aid services available. These services are not available everywhere and have a very restricted ability to help people because of limited funding. They may be able to represent you or alternatively can help with a strategy and documents so that you are better prepared for court.
There may also be low fee services that are available if you qualify for them. It is best to approach your local bankruptcy court as they will have the details of these programs and how to apply for them. There may also be Pro Se clinics, such as the joint federal Pro Se clinic in California. This is a place that people can go for help with their bankruptcy cases that are filed in the US bankruptcy court.
Consider Your Financial Position
In some cases you may not have any assets that could be used by creditors and an income level that would make garnishing your wages pointless. This is known as being “Judgment Proof” and it means not that no judgment may be made against you but that any judgment would be unenforceable.
This of course does not apply to bankruptcy exempted debts such as owed taxes and government supplied educational loans. Almost all other debts would be unrecoverable and it can be advantageous to approach creditors through a lawyer with you position as it can lead to creditors stopping recovery action. This is because they do not want to spend more money trying to recover a debt that has no prospect of being repaid.
There are a range of payments that are generally protected from being garnished such as social security payments and disability payments. This can mean that you can avoid having to file bankruptcy because you are effectively protected from any action taken by your creditors.
- Collect all your creditors’ details including amounts owed and contacts.
- Contact a bankruptcy attorney.
- Once they confirm your position they can send letters on your behalf to all of your creditors.
- Be aware that this does not stop the creditors from trying to contact you or seeking judgments against you.
Funds to Pay for Filing Bankruptcy
It is vitally important to be represented when you file bankruptcy so your assets and income are protected as much as possible. Here some options you might consider to get the funds.
- Approach friends or family for help.
- Reduce expenses such as cell phone plans, cable, gym memberships that you do not need.
- Stop any debt repayments you are still paying and use them for fees instead.
- Cash out the amount from your 401k. Note you may have to pay a penalty and tax on the amount withdrawn.
- Use a 401k loan to cover bankruptcy costs.