Emerge from bankruptcy with a plan for the future

Declaring bankruptcy is not always the result of fiscal irresponsibility; medical bills, combined with excessive credit card debt,  are the most common cause after divorce. Whatever the reason, you will need a qualified bankruptcy attorney to navigate the processes bankruptcy be it Chapter 7 or Chapter 13. If you find yourself in that position, follow these key steps to get you through the process:

Get the right assistance. Unlike legal procedures such as real estate closings or simple wills, declaring bankruptcy is not a DIY project. Hiring an attorney familiar with state and federal tax laws governing bankruptcy should be the first step on the road to repairing the damage to your credit rating. See our guide to getting the right legal assistance for ideas on how to find a qualified bankruptcy attorney.

Pick a Number: Bankruptcy can work in one of two ways, by either liquidating assets to discharge debts (commonly known as Chapter 7) or reorganizing debts under a repayment plan (Chapter 13) . Each has its own specific qualifications, procedures and consequences; your attorney can help you decide which way to file.

A Chapter 7 bankruptcy allows you to sell property and other assets in exchange for relieving your unsecured debts (i.e., those without collateral, like credit cards). Your secured debts (mortgage, car loans) can either be resolved through repossession, restructuring of your loan (at the creditor’s discretion) or paying a lump sum to replace the property.

A Chapter 13 bankruptcy allows you to repay your debts within 3-5 years based on a combination of your earnings, secured and unsecured debt.

Cautionary notes

Face some hard truths: Without learning from past mistakes and setting up a plan to manage your spending and save for emergencies, you may find yourself back in financial hot water again, with far less court-sanctioned legal relief in sight. Your first post-bankruptcy step should be to reclaim your credit rating.

The Bottom Line: Declaring bankruptcy can be a humiliating and stressful experience. Make the process go smoothly by hiring the best professional help you can afford and being honest with yourself and the court about your mistakes.