15 steps if bankruptcy is inevitable by Liz Weston
There are certain things you must (and must not) do if you intend to file. And a wrong move could beincredibly costly.
By Liz Pulliam Weston, writer for MSN Money

The decision to file for bankruptcy is rarely an easy one. If you think you're likely to file, though, you need to take certain steps to make sure the process goes as smoothly as possible -- and that you don't wind up in worse shape than you are now. That's because bankruptcy is a complex legal process, made more so by the Bankruptcy Reform Act of
2005. Even a small misstep could mess up your case and make relief more expensive or even impossible.

Here's your game plan:
1. Educate yourself about the process. MSN Money's bankruptcy guide at
http://articles.moneycentral.msn.com/Banking/BankruptcyGuide/BankruptcyGuide.aspx has a wealth of articles, including "Your 5-minute guide to bankruptcy," to get you started. Basically, there are two types of consumer bankruptcies: Chapter 7 liquidation, which wipes out credit card and most other unsecured debt, and Chapter 13 reorganization, which allows you to keep more property but requires a five-year repayment plan.
Research what each chapter means and the process involved so you can discuss your situation more knowledgeably with your attorney (more on that in a moment).

2. If you haven't already, explore the alternatives. Bankruptcy is too drastic an option to be your first choice. If you have little income and no assets, for example, you may be "judgment-proof," which means creditors can't take meaningful action against you and that bankruptcy might be unnecessary. If you do have something to lose, however, you might want to consider negotiating with your creditors or exploring credit counseling or debt settlement. These three articles can give you the scoop:
• "Get a credit card reprieve."
• "The consumer's guide to credit counseling."
• "When debt settlement makes sense."

3. Leave your retirement accounts alone. Using retirement money to pay down debt is usually a bad idea, but it's particularly bad if you think you may be headed to bankruptcy court. Money in 401(k)s, IRAs and other retirement accounts is typically protected from creditors, so you'd be using cash that could have been preserved to pay debts that would have been wiped out.

4. Make a list of what you owe. To get relief from your debts in bankruptcy, you typically need a complete list of your creditors (companies or people to whom you owe money) and how much you owe them.

5. Pull your credit reports. These files will list debts you may have forgotten about as well as names and contact information for creditors and collection agencies. You can get free annual looks at your reports from the three major bureaus, Equifax, Experian and TransUnion. (Here's how to get them for free.)

6. Get your paperwork together. Bankruptcy requires a ton of paperwork, noted Henry Sommer, a past president of the National Association of Consumer Bankruptcy Attorneys. Here's a partial list of what you should bring to your attorney:
• 60 days' worth of pay stubs (you eventually may need to provide more to prove your income for
the six months prior to filing).
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• The last two months of bank statements.
• Tax returns for the previous two years.
• Statements for all brokerage and retirement accounts, including IRAs, Roth IRAs and 401(k)s.
• Your most recent bills.
• Any collection letters you've received or other correspondence about your debts.
• Any current loan contracts (for homes, cars, etc.).
• Any lease contracts (for apartments, cars, etc.).
• Any home appraisals or tax assessments related to your home or other real estate you own.
• Any paperwork related to past bankruptcies.
• Any legal papers you've received, including but not limited to lawsuits, judgments, wage
garnishments, divorce decrees, court orders and child-support orders.
• Proof of your identity, such as a driver's license or Social Security card.

7. Consult with an experienced bankruptcy attorney. You can get referrals from your state's bar association or the National Association of Consumer Bankruptcy Attorneys. Many bankruptcy attorneys provide a free or discounted initial session to discuss your situation. Technically, you can file for bankruptcy without an attorney, but the process is complicated, and I don't recommend it. Self-help books, Web sites and message boards can help educate you, but they can't give you truly individualized legal advice. If you get it wrong, you'll have no one but yourself to blame, whereas if an attorney screws up, you
can sue.

8. Don't drag your heels. Ask bankruptcy experts -- the judges, attorneys and trustees who handle these cases -- and they'll tell you many people wait too long to file, continuing to throw good money after bad as they struggle with debts they can't pay. Once you decide bankruptcy is the right choice for you, take action. Get your attorney the paperwork he or she needs and follow through on the other steps required to keep the
process moving.

9. Stop paying debts that are likely to be discharged. Talk to your bankruptcy attorney about this first, Sommer said, but typically it makes little sense to continue paying debts that will be erased in bankruptcy, such as credit cards, medical bills and payday loans. "You're sort of throwing your money away," Sommer noted. If you're giving up a house or a car, you may want to stop paying those bills, too. But again: Talk to an attorney first, and ask how best to handle creditors.

10. Start saving. Bankruptcy is expensive. A Chapter 7 typically costs $1,500 or more, including filing fees and your attorney's bills. A Chapter 13 may cost twice as much. (See "When you can't afford bankruptcy.") You may be able to raise the cash if you stop paying your soon-to-be-discharged debts. If not, here's a partial list of places to look for additional funds:
• Sell something.
• Trim expenses.
• Get a second or third job.
• Ask your spouse to get a temporary job.
• Use your tax refund.
• Borrow from a cash-value life insurance policy.
• Get a roommate or move in with someone else to reduce shelter costs.
• Ask for a gift or loan from friends or family.
• Take out a 401(k) loan (this is the one exception to the "don't touch retirement funds" rule).

11. Stop using your credit cards. As soon as you know you're going to file, cut up the cards. "If you use a credit card that you don't intend to pay back," Sommer said, "that's considered fraud." In particular, don't take out cash advances or buy luxury items if bankruptcy is even a possibility, because those actions can scuttle your filing and get you charged with fraud.

12. Move your cash if necessary. Do you owe money to a bank or credit union? Before you file, withdraw any money you have there and move it to a bank or credit union to whom you don't owe anything. Otherwise, once notified of your bankruptcy, the bank may try to seize that cash.

13. Don't buy anything major. You typically can't protect any asset purchased within 90 days of a bankruptcy filing, so don't buy a car or property or anything else of real value.

14. Don't give away money, property or assets. Once you know you're going to file, you shouldn't make a financial move without consulting your attorney. That's particularly true if you want to pay back friends or relatives or transfer assets to anyone else. Even if you're trying to do the right thing, you could be committing fraud.

15. Complete the required credit counseling. Before you can file for bankruptcy, you must complete a one-hour credit counseling session with an agency approved by the U.S. Department of Justice. The cost is typically $50, although the agency must waive the fee if you can't afford it. Make sure you get a certificate showing you've completed this counseling, as it will be required for your bankruptcy filing.
Liz Pulliam Weston is a personal finance columnist for MSN Money (http://money.msn.com), where this article first appeared. For more, visit AskLizWeston.com.