How to Organize Your Finances Before Filing Bankruptcy

Choosing to file for bankruptcy is a big decision that can help you take control of your finances. Your success depends a lot on how you prepare before you go to court. Bankruptcy is mainly an administrative process that needs complete honesty.

Getting your finances in order does more than help your attorney. It protects your assets, helps make sure your case is approved, and shows the court that your financial information is correct. Being clear about your finances now can help you avoid delays or questions about your honesty later.

Step 1: Taking a Comprehensive Financial Inventory

The first step in bankruptcy is collecting the five main types of documents. The court needs detailed information to decide if you qualify for Chapter 7 or Chapter 13.

Essential Documentation Checklist:

• Income Verification: Collect pay stubs for the last six months and your federal and state tax returns for the last two years.
• Asset Disclosure: List everything you own. This covers real estate, vehicles, retirement accounts like 401ks or IRAs, and personal items such as jewelry or electronics.
• Debt Statements: Collect recent statements for credit cards, medical bills, personal loans, and mortgages. Also include any debts you owe to family members or others that might be easy to overlook.
• Bank Records: Provide statements for all accounts held in your name for at least the last 90 days.

Common Mistake: Many people forget to list assets they think have no value or debts they plan to pay back on their own. In bankruptcy, every asset must be listed. Leaving something out can mean losing certain protections or even having your case dismissed.

Step 2: Understanding Your Cash Flow – The Pre-Bankruptcy Budget

After you gather your documents, take a close look at your daily spending habits. The court will use a Means Test to compare your average monthly income to your basic living expenses.

Sort your expenses into two groups: Fixed costs like mortgage or rent, car insurance, and utilities, and Variable costs like groceries, gas, and clothing. This helps your attorney see if you have enough extra income for a Chapter 13 repayment plan or if you qualify for Chapter 7.

Pro-Tip: Track all your spending for 30 days. Small, regular charges or unnoticed expenses can throw off your budget if you don’t include them in your bankruptcy paperwork.

Step 3: Assessing Your Debts and Potential Paths Forward

Not all debts are the same. As you organize your finances, make sure to separate secured debts, which are backed by something like a car, from unsecured debts, such as credit cards.

By organizing your finances, you can catch potential problems before the court does. 

Contact Sasser Law Firm to Navigate Your Bankruptcy Process

Starting over financially involves a lot of paperwork, but you don’t have to do it by yourself. At Sasser Law Firm, we know that gathering all the financial information for bankruptcy can feel overwhelming.

Our team will help you review your financial information, look over your budget, and make sure your bankruptcy paperwork is filed correctly. If you’re ready to move from financial stress to a clear plan for recovery, we’re here to support you. Contact us today.