* Bankruptcy has the potential to dramatically alter a person's life. Before deciding on bankruptcy, first consider the consequences of bankruptcy as well as the alternatives.
* Bankruptcy remains on your credit report dramatically hurting your score for ten years. This extremely poor credit score will hinder your efforts to obtain any personal credit including: buying a house or car, obtaining credit cards, and leasing an apartment.
* Co-signers in any of your debt should be considered before you decide on bankruptcy. In a Chapter 7 bankruptcy, co-signers are liable for your debt. That is, your creditors will make your co-signer pay your debt. Because co-signers are normally your close friends or family, you may want to consider what it would mean for them to be stuck with your debt. However, if you file a Chapter 13 bankruptcy, your co-signer will be protected from your creditors.
* In a bankruptcy, the intimate details of your finances will be revealed.
2. Take account of the kind of debt you have: secured or unsecured
* Not all debt is dischargeable in bankruptcy. These non-dischargeable debts include taxes, child support, alimony, student loans, court judgments, unlisted debt, and fraudulent debts.
* Secured debt is basically debt for which a creditor may reposes property if the debtor defaults on the bill. For example, car loans and home mortgages are secured debt.
* Unsecured debt is pretty much all other debt such as credit card debt.
* You must take into account all your debt and the kind of debt it is because all of your creditors must be listed when you file bankruptcy.
* If filing a Chapter 13 and you want to keep one or more items of secured property, you should maintain payments on the property to avoid it being repossessed before bankruptcy is filed.
3. Be Truthful about your assets -- hidden assets
* In a bankruptcy, many forms of dishonesty are a crime including concealing property, knowingly or fraudulently making false statements, falsifying records, etc.
* Individuals committing bankruptcy crimes may incur up to five years in prison.
* Many assets are protected in bankruptcy. So, by being truthful with your attorney, your attorney will be able to give you the maximum protection allowed.
* Hidden assets may include, income tax return, Social Security benefits, family loan, unemployment benefits, pensions, etc.
* If individuals lie on their bankruptcy papers, the court can disallow the bankruptcy.
4. Prepare for bankruptcy
* Collect appropriate documentation. Obtain your credit card statements for the previous two years prior to filing, copy your driver's license and social security card.
* File 6 months prior to making large purchases or getting large sums of money.
* Consult an attorney
* Do Not intentionally acquire debt with the intent to have it be put in the bankruptcy because that is a bankruptcy crime.
5. Check to see if you are eligible
Not everyone is eligible for a Chapter 7 bankruptcy. Eligibility is based on a "Mean Test" calculation. If your income falls below the median income for households your size in your state, then you should pass. However, if it does not, you may still pass based on other criteria. See an attorney to calculate your eligibility based on your income.