Must Know Dos and Don’ts for Bankruptcy Filers

Are you drowning in debt? Are debt collectors calling you day and night? Bankruptcy might be your way out. It’s a legal process that helps you start fresh by discharging unsecured debt (which means legally wiping out debts like credit cards and medical bills that aren’t tied to property).

But filing for bankruptcy is a big deal. It will hurt your credit score and your ability to borrow money in the future. To make bankruptcy work for you— you need to know what to do—and what not to do.

This article can guide you on exactly what to do (and not do) when filing for bankruptcy. Follow these and you will be on the right track.

Before You Start Your Financial Assessment

Don’t rush into bankruptcy. Take time to look at your entire financial picture. There may be other options that are better for you. Here’s what you need to do:

1. Make a list of everything you owe and own. List every debt with the total amount, interest rate and due date. Don’t forget to include everything you own, like investments, houses, cars and savings accounts.
2. Figure out your monthly cash flow. Track every dollar coming in, whether it’s from your regular job, side work or freelancing. Then list every dollar going out for rent, food, utilities and debt payments.
3. Look at your debt vs your income (your debt-to-income ratio or DTI). When your monthly debt payments take up a big chunk of what you earn, it’s usually a sign you need serious help with debt.
4. Think about upcoming changes in your finances. Are you getting a raise? Are you paying for your child’s college? Are there any big expenses coming up? These future changes matter when making your decision.

If, after considering everything, you still think bankruptcy is your best option, it’s time to learn how to file.

Essential Things to Know When Filing Bankruptcy

Once you decide to file for bankruptcy— you must follow bankruptcy laws and be completely honest throughout the process. Here's what you need to do for a smoother experience.

Things You Must Do

1. Take pre-filing credit counseling from an approved agency within 180 days of filing bankruptcy. After filing— you’ll need to complete debtor education to get your debts discharged.
2. Find a bankruptcy lawyer who can help you choose between Chapter 7 and Chapter 13 bankruptcy— fill out the paperwork correctly and make sure you follow federal and state laws.
3. Research debt management plans, debt consolidation, or debt settlement before you decide. If you don’t have extreme debt or want to keep certain assets— these might work better for you.
4. Make a complete list of all your debts and assets— including money you owe to family or friends. Hiding anything is fraud and can get you in big trouble.
5. If you want to keep your assets— you must continue to make payments on any secured loans (like your house or car). Even during bankruptcy— missing payments can result in the loss of these properties.
6. Create and keep a file with all important documents— including pay stubs, bank statements, tax returns and court notices. Keep these bankruptcy related papers for at least 10 years.
7. Attend the 341 meeting (also called the creditors meeting) and answer the trustee’s questions honestly and respectfully. Missing this meeting without a good reason can get your case thrown out.
8. Let your lawyer know immediately about any lawsuits, wage garnishments or potential property from divorce settlements. These legal matters can affect your bankruptcy case.

Things You Should Not Do

1. Check your waiting periods before filing - you must wait 8 years between Chapter 7 discharges and 6 years for Chapter 13. Talk to your lawyer about timing if you are expecting money soon from tax refunds or inheritance.
2. Don’t take personal loans or buy luxury items on your credit cards before you file. These will be seen as fraudulent and will not be discharged in your bankruptcy.
3. Don’t pay back your friends or family before other creditors. The court can reverse these preferential payments (made within 1 year for family/friends or 90 days for regular creditors)—which will cause problems for everyone involved.
4. Keep your assets in your name. Moving your property or money to others is fraud. It will cost you your discharge and the trustee can reverse these transfers.
5. Stay away from gambling and payday loans while preparing for your bankruptcy. Gambling debts can’t be discharged and payday loans will only make your situation worse.
6. Leave your retirement accounts [401(k), IRA and pension plans] alone. They’re protected from your creditors in bankruptcy but if you withdraw the money—you will lose that protection and may face tax penalties.
7. Leave your old credit card accounts open even if you don’t use them. Closing your old accounts will hurt your credit history and score. Talk to your lawyer about managing your existing credit cards.
8. Research on which debts will not be discharged— such as student loans, child support and certain taxes. Knowing this will help you plan your financial future.

Alternatives to Consider Before Bankruptcy

Since bankruptcy will affect your credit for years, consider these other options first if you can manage your debt another way:

Get Professional Help Through Credit Counseling

A credit counselor becomes your finance coach. They will look at your income, expenses and debt. After reviewing everything— they will create a budget for you. They will teach you money management skills and suggest specific plans to pay off your debt. Many counselors offer free or low-cost initial sessions to evaluate your situation.

Create a Structured Payment Plan Through Debt Management

This is a structured repayment program run by non-profit credit counseling agencies. They work directly with your creditors to potentially lower your interest rates. Instead of making multiple payments— you make one monthly payment to the agency and they pay your creditors. This usually takes 3-5 years to complete. The agency might also help you waive some fees.

This combines all your high-interest debt into one loan with a lower interest rate. You can use a personal loan or a home equity loan. For example, if you have several credit cards with 20% interest rates— you can get a consolidation loan at 10%. This means one payment instead of many and you’ll pay less in interest. Just be careful with home equity loans—your house becomes collateral.

Negotiate Lower Payoffs Through Debt Settlement

This involves negotiating with creditors to accept less than what you owe. You will typically save money in a special account until you have enough for a lump sum offer. For example, if you owe $20,000, the creditor might accept $10,000 to close the account. However, this can seriously hurt your credit score— especially if you stop making payments while saving. Creditors aren’t required to accept settlement offers and you might owe taxes on forgiven debt.

Bottom Line

Filing bankruptcy isn’t the end—it’s a fresh start. Follow these guidelines and get help from a professional bankruptcy lawyer and you will be fine. The keys are honesty, organization and good timing. Not sure what to do? Talk to a qualified bankruptcy attorney who knows your state’s laws. With proper planning and professional help— bankruptcy can help you overcome your debt challenges and build a better financial future.

Common Questions About Bankruptcy

Will Creditors Call Me After I File?

No. Once you file bankruptcy— an automatic stay stops creditors from contacting you about debts. If any creditor calls or sends letters— tell your attorney right away.

How Long Does Bankruptcy Take?

For Chapter 7: 4-6 months

For Chapter 13: 3-5 years (you will repay some debts through a court-approved plan)

What If I Forget to List a Debt?

Any debt you don’t include in your bankruptcy paperwork won’t be discharged. List every debt and creditor to avoid problems or fraud accusations.

Do I Have to Go to Court?

You usually won’t see a judge but you must attend the 341 meeting (Meeting of Creditors) with your trustee. If you file Chapter 13— you might also have to attend a confirmation hearing.

Will My Employer Find Out?

Your employer usually won’t know unless your wages are being garnished or you tell them. While bankruptcy records are public— someone would have to search for this information specifically.