- 1). Make a list of all of your unsecured debts and determine what you owe. Calculate a payment time frame based on how fast you expect to pay it off making your current payments.
- 2). Create a budget and look for ways to save more cash and generate more income. Calculate the maximum amount of extra money you can now put toward paying off your debts each month. Do not consider tapping your retirement savings in this effort. Such accounts would be protected under a bankruptcy filing, and by using your retirement investments you would be putting your long-term financial safety in jeopardy.
- 3). Recalculate how long it would take to pay off your total debt making your new, higher payment. If this time period is longer than five years, you may be better off filing Chapter 7 bankruptcy, as five years is the maximum length of a debt repayment plan under Chapter 13 bankruptcy. If your calculated payoff date is less than five years, you have a better chance of managing your debts without a bankruptcy filing.
- 4). Meet with a credit counselor to discuss your situation, if you calculated that it would take longer than five years to pay off your debts. A good counselor should be able to help with your budget plan, advise you about debt consolidation and negotiate with your creditors for better terms. Look for a counselor affiliated with the National Foundation for Credit Counseling.
- 5). Learn your state's laws regarding debtor judgments. Many states provide that essential assets, such as your car, home or retirement accounts, may be protected from seizure by your creditors even in bankruptcy.
- 6). Make a list of your income and assets. If you have little income and most of your assets would be protected from creditors under your state's laws, filing bankruptcy may not be necessary, as your creditors cannot enforce a judgment against you. However, a judgment can remain in force for many years, again depending on your state's laws, so that if you have assets or income in the future, your creditors may still pursue you. Filing for either Chapter 7 or 13 bankruptcy enables you to wipe the slate clean.
- 7). Consult with a bankruptcy attorney if you still believe bankruptcy is your best option. You can represent yourself in bankruptcy, but you will probably be able to protect more of your assets if you have an attorney. Any reputable attorney should give you an initial consultation for free, and can discuss viable bankruptcy types as well as alternatives for your specific situation.