Essential Steps Before Filing Bankruptcy: What To Do First

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Understanding what to do before filing bankruptcy is crucial for anyone looking to regain control of their financial situation. This guide discusses the essential steps to consider before filing for Chapter 7 bankruptcy, ensuring you can meet your basic needs after the process.

Introduction To Bankruptcy Basics

Understanding bankruptcy is essential for anyone considering this financial option. Bankruptcy is a legal process that allows individuals or businesses to eliminate or restructure their debts, providing a pathway to regain financial stability. It is crucial to know the different types of bankruptcy, such as Chapter 7 and Chapter 13, as each serves different needs and circumstances.

Filing bankruptcy can provide relief from overwhelming debt, but it also comes with responsibilities and implications for your financial future. Knowing the basics helps in making informed decisions that impact your life post-bankruptcy.

Why Planning Is Vital Before Filing Bankruptcy

One of the first questions we ask our potential clients is whether they have considered their ability to meet basic minimum needs after filing for bankruptcy. This is essential because if you find yourself unable to afford the necessities after your bankruptcy, it may indicate that it wasn’t the right time for you to file. Alternatively, it could suggest that we need to adjust our approach to ensure you can sustain your basic needs after the bankruptcy process.

Here are some key factors to consider:

• Monthly Income: Calculate your average monthly income to understand what you can afford.
• Essential Expenses: List all necessary expenses to determine your financial baseline.
• Leftover Income: Assess any surplus income after meeting your basic needs to plan for debt repayment or savings.

The Fresh Start Benefit

Filing for bankruptcy is designed to provide a “fresh start”. A significant advantage of bankruptcy is the removal of negative payment history associated with debts that are discharged. Payment history is a crucial factor in your credit score, and by clearing this history, you can improve your credit standing. However, if you start missing payments right after your bankruptcy is finalized, you will lose one of the key benefits of this fresh start.

Protecting Your Credit History

After filing for bankruptcy, it is essential to protect the clean credit history you gain. Understanding how to rebuild your credit is a fundamental part of this process. At Austin Bankruptcy Lawyers, we prioritize discussing credit rebuilding strategies with each client, outlining how long to wait and what steps to take to improve your credit after bankruptcy.

Assessing Your Financial Situation

You may wonder how to ascertain which debts will be discharged and what to plan for after bankruptcy. Start by determining your monthly income:

• If your income is consistent, use that figure directly.
• If your income fluctuates, review the last six months to calculate an average monthly income.
• Include any additional income, such as child support, in your calculations.

Calculating Your Basic Needs

Next, add up your essential expenses, including:

• Housing costs
• Food
• Transportation
• Other basic necessities

Compare this total to your monthly income. It’s also helpful to know how much money you have left over after meeting these needs. For instance, if your basic needs total $1,000 monthly and your income is $2,000, you have an additional $1,000 each month. This information is crucial when discussing your financial situation with your attorney, especially if there are debts you cannot eliminate through bankruptcy.

Summary

Successfully navigating the bankruptcy process requires careful planning and understanding of your financial situation. By identifying dischargeable debts, calculating your monthly income, assessing essential expenses, and understanding your financial flexibility, you can set yourself up for a successful fresh start.

If you’re considering filing bankruptcy, it’s essential to consult with a qualified attorney who can guide you through the process. At Austin Bankruptcy Lawyers, we specialize in helping clients understand their options and achieve financial freedom. Schedule your free initial consultation today to explore how we can assist you in taking the next steps toward financial stability.