Before you file for bankruptcy, explore every alternative and consult with a bankruptcy attorney. Filing too soon — or doing the wrong things before filing — can make your situation worse, not better.
Things to Do Before Filing
| # | Task | Why |
|---|---|---|
| 1 | Consult a bankruptcy attorney (free consultation) | Understand your options before acting |
| 2 | Complete required credit counseling | Must be done within 180 days before filing |
| 3 | Gather all financial documents | Income, debts, assets, expenses |
| 4 | List all debts (secured and unsecured) | Know what can and can’t be discharged |
| 5 | Stop using credit cards immediately | Recent charges may not be dischargeable |
| 6 | Do NOT transfer assets or pay back family | Fraudulent conveyance can void your filing |
| 7 | Explore all alternatives first | Bankruptcy has long-lasting consequences |
| 8 | Understand which chapter to file | Chapter 7 vs. Chapter 13 |
| 9 | Review what property is exempt in your state | Know what you can keep |
| 10 | Do NOT cash out retirement accounts | 401(k) and IRA are usually protected in bankruptcy |
Chapter 7 vs. Chapter 13
| Feature | Chapter 7 | Chapter 13 |
|---|---|---|
| What it does | Liquidates non-exempt assets, discharges unsecured debt | Creates 3-5 year repayment plan |
| Timeline | 3-6 months | 3-5 years |
| Who qualifies | Must pass means test (income below state median) | Regular income required |
| Keep your home? | Only if current on payments and equity is exempt | Yes — catch up on missed payments through plan |
| Keep your car? | If current and equity is exempt | Yes — included in repayment plan |
| Credit report impact | 10 years | 7 years |
| Cost | $1,500-$3,500 (attorney + filing fee) | $3,000-$6,000 (attorney + filing fee) |
| Best for | Low income, mostly unsecured debt, few assets | Regular income, want to keep property, have payment ability |
Alternatives to Explore First
| Alternative | How It Works | Best For |
|---|---|---|
| Debt management plan (DMP) | Credit counselor negotiates lower rates; single monthly payment | Manageable debt, want to avoid bankruptcy |
| Debt consolidation loan | One loan replaces multiple debts at lower rate | Good credit, can qualify for lower rate |
| Balance transfer (0% APR) | Move credit card debt to 0% card | Smaller balances you can pay in 12-21 months |
| Negotiate with creditors directly | Request hardship programs, reduced payments, settlement | Temporary hardship (job loss, medical) |
| Debt settlement | Negotiate to pay less than owed (30-50 cents on dollar) | Can’t pay full amount but have some ability to pay |
| Do nothing (judgment-proof) | If you have no assets and only exempt income | Very low income, no assets, no property |
What You Cannot Do Before Filing
| Action | Consequence |
|---|---|
| Transfer assets to family or friends | Fraudulent conveyance — court can reverse and deny discharge |
| Pay back family members (over $600) | Preferential payment — trustee can claw it back |
| Rack up new credit card debt | Recent charges may survive bankruptcy (fraud presumption) |
| Cash out 401(k) or IRA | Retirement funds are protected — cashing out wastes them |
| Sell property below market value | Court can reverse the sale |
| Hide assets or income | Bankruptcy fraud — criminal charges possible |
| Deposit cash gift and claim it’s yours | Must disclose all income sources |
Debts That Bankruptcy Cannot Eliminate
| Debt Type | Dischargeable? |
|---|---|
| Credit card debt | ✅ Yes (unless recent/fraudulent) |
| Medical bills | ✅ Yes |
| Personal loans | ✅ Yes |
| Utility bills | ✅ Yes |
| Student loans | ❌ No (rare exceptions with “undue hardship” proof) |
| Child support / alimony | ❌ No |
| Tax debt (recent, less than 3 years) | ❌ No |
| Court fines and restitution | ❌ No |
| Debts from fraud or willful harm | ❌ No |
| HOA fees (some) | ⚠️ Partial |
| Secured debt (if you want to keep property) | ⚠️ Must keep paying |
The Bottom Line
Bankruptcy is a legitimate legal tool for a fresh start, but it should be your last resort. Before filing, consult a bankruptcy attorney (most offer free consultations), complete required credit counseling, stop using credit cards, and do NOT move assets or pay back family preferentially. Most importantly: don’t touch your retirement accounts — they’re protected in bankruptcy and raiding them before filing is one of the most costly mistakes people make.
Related: Before You File Bankruptcy | Things to Know Before Debt Settlement