6 Steps to Filing for Bankruptcy and Protecting Your Financial Future


Filing for personal bankruptcy is less painful if you start taking action immediately. These steps for filing for bankruptcy will help protect your financial future.

Before the tips, a quip:

“The worst bankruptcy in the world is the person who has lost his enthusiasm.” ~ HW Arnold.





Losing your enthusiasm may be the worst bankruptcy in the world…but preparing for financial bankruptcy may FEEL worse than losing those happy feelings!

To learn more about bankruptcy, read How to File for Chapter 7 Bankruptcy.

And here are financial expert Ethan Ewing’s tips for filing for personal bankruptcy…

6 Steps to Filing for Bankruptcy and Protecting Your Financial Future

1. Pull a credit report. Every individual is eligible for a free copy of his or her credit report each year. Individuals can use the report to confirm all information is accurate and, in a bankruptcy filing, to be certain all creditors are included in the filing.

2. Consider all other options before filing for personal bankruptcy. These include the following:

  • Creditor negotiation – Consumers who cannot make even minimum payments on bills can try calling creditors and asking for temporary hardship status. Some creditors may work out payment plans. Pro: Can provide longer payment terms. Con: Individual consumers may find it difficult to negotiate effectively with large creditors.
  • Credit counseling – Credit counseling agencies may receive their funding from creditors and construct “debt management plans” that reduce interest rates, but not principal owed. “It is important to be careful when choosing a credit counseling agency, as many agencies receive funding from creditors and may have incentives that are not in alignment with their customers,” Ewing says. “Also, do not be impressed by those that claim to be nonprofits. In a recent audit of the industry, the IRS revoked the nonprofit status of the majority of credit counseling agencies it reviewed.” Pro: Lower monthly payments. Con: Up to five years of making payments. Monthly payments may not significantly decrease.  Enrollment in credit counseling appears as a negative on a consumer’s credit report (Read How to Repair Your Credit Score for more information).
  • Debt resolution – Debt resolution firms negotiate with creditors on the consumer’s behalf to lower principal amounts due. Consumers then pay the firm a fee for the services provided. “Debt resolution can obtain significantly better repayment terms than achieved with Chapter 13 bankruptcy – and with no bankruptcy judgment – especially for those facing financial problems because of a catastrophic event or medical problems,” Ewing said. Pros: Savings can often reach up to half the full amount owed. It is the fastest way out of debt without Chapter 7 bankruptcy; consumers can be out of debt within three years. Con: It can impair a credit score and may not be able to stop collection calls.
  • Chapter 7 bankruptcy – Bankruptcy reform sharply curtailed Chapter 7 filings, which eliminate most consumer debt. A “means test” determines whether filers qualify for Chapter 7 based on average monthly income over the past five years. Pro: Eliminates debt and can be quickly discharged. Con: Creates a major black mark on the credit report for at least seven years. Many people who file for personal bankruptcy lose homes and personal property.
  • Chapter 13 bankruptcy – Chapter 13 filings, which require consumers to repay debt on a repayment plan, are available to those whom their state determines, through its means test, have enough income to pay back at least some of their debt. Pro: May reduce debt and stop collection calls. Con: The publicly available bankruptcy judgment remains on a consumer’s long-term credit report for at least seven years. Repayment terms generally are less favorable than those found with debt resolution.

3. Don’t wait too long to file for financial bankruptcy. Take action immediately. “The purpose of filing personal bankruptcy is to help individuals and families protect their remaining assets in the face of overwhelming financial problems. If you suspect you must file for bankruptcy protection, try to do so before you lose precious assets,” Ewing says. “Complete the mandatory credit counseling sessions – required through the 2005 bankruptcy reform – as soon as possible to keep the process moving.”



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4. Save money to file for personal bankruptcy. Since the Bankruptcy Reform Act took effect, the filing process is more expensive. Filers must pay higher court fees, as well as costs for mandatory credit counseling sessions before filing.

For tips on rebuilding your financial life, read Money and the Law of Attraction – 4 Ways to Attract Wealth.

5. Do not try file for personal bankruptcy alone. The new bankruptcy laws are extremely complicated. Most financial experts advise consumers to hire an attorney to file bankruptcy for them. Be aware that attorneys’ fees for filing bankruptcy have increased in the past three years. One way to prepare for financial bankruptcy is to save your money.

6. Inform creditors and collectors about the financial bankruptcy. “Once you tell a debt collector that you have filed for bankruptcy protection, that collector is required to quit calling you,” Ewing noted. “Provide the collector with the date and county of filing, and your attorney’s name and number.”





To protect your future finances, read 6 Ways to Take Control of Your Finances.


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4 thoughts on “6 Steps to Filing for Bankruptcy and Protecting Your Financial Future

  • Laurie Pawlik-Kienlen Post author

    Thanks for your comments! My sister filed personal bankruptcy, and it took eight years for her credit reports to start to look good again…

  • Steve

    I totally agree with your 5th point about not going into bankruptcy alone. My advice is to get a seasoned professional on your side so there are no surprises and you can take advantage of all options out there.

  • Credit Card Chaser

    @ Paula

    Good points because it seems that there are many scams out there oriented around “helping” people get debt relief when in reality these counselors just charge high fees and then move on sometimes without doing much helping at all.

  • Paula: Stop Bill Collector Harrassment

    One suggestion that I’d like to make is that consumers should become familiar with their rights before looking at counseling and other alternatives. The primary piece of Federal legislation that applies to bill collectors harassment is the Fair Debt Collection Practices Act. In addition, consumers should also become familiar with state laws as well. Ultimately, it doesn’t have to be complex, but some careful reading and deliberation may be the best approach.