What Should You Do Before Filing for Bankruptcy in Alabama?

When debt becomes difficult to manage, bankruptcy may offer a way to regain financial stability. But filing is a significant financial and legal decision, and what you do before starting a bankruptcy case can affect the process.



If you are considering Chapter 7 or Chapter 13 bankruptcy in Alabama, preparing your finances, gathering the right information, and avoiding certain pre-filing mistakes can help you make a more informed decision about your next steps.

Take a Complete Look at Your Finances

Before filing for bankruptcy, start by understanding exactly where you stand financially.

Make a list of your:

• Credit card balances
• Medical bills
• Personal loans
• Mortgage debt
• Vehicle loans
• Tax obligations
• Student loans
• Collection accounts
• Lawsuits or judgments
• Other outstanding debts

You should also review your income, monthly expenses, bank accounts, real estate, vehicles, retirement accounts, and other property.

Bankruptcy requires detailed disclosures about your financial circumstances. Having an accurate picture of what you own and owe can also help determine whether Chapter 7, Chapter 13, or another approach may be appropriate.

Gather Your Financial Documents

Bankruptcy involves more than simply listing the amount of debt you have. You will need financial records to accurately prepare your case.

Consider gathering documents such as:

• Recent pay stubs
• Recent tax returns
• Bank statements
• Credit card statements
• Mortgage statements
• Vehicle loan information
• Collection notices
• Lawsuit and garnishment documents
• Retirement and investment statements
• Records concerning property you own

Having these documents organized before filing can make it easier to provide complete and accurate information throughout the bankruptcy process.

Understand Chapter 7 and Chapter 13

Chapter 7 and Chapter 13 can both provide bankruptcy relief, but they work differently.

Chapter 7 generally focuses on discharging qualifying debts. Eligibility can depend partly on income and other financial circumstances.

Chapter 13 allows eligible individuals with regular income to reorganize debts through a court-approved repayment plan. It can be particularly useful for people who need time to catch up on certain secured debts, such as missed mortgage payments.

The right option depends on your income, property, debts, and financial goals. The U.S. Courts recommends obtaining legal advice because an attorney can help determine whether to file, which chapter may be appropriate, which debts may be discharged, and how filing could affect property.

Review Your Property Before Filing

A common concern is whether bankruptcy means losing your home, vehicle, or other important property.

Filing bankruptcy does not automatically mean losing everything you own. Exemption laws can protect qualifying property, while the amount of equity you have and the bankruptcy chapter you file can also affect the outcome.

Before filing, review your major assets and determine how they may be treated. This is especially important before making changes involving your home, vehicle, savings, or other valuable property.

Don't Give Away or Transfer Property

If you are worried about losing an asset, transferring it to a relative or friend before bankruptcy may seem like a solution. It can instead create serious complications.

Bankruptcy requires disclosure of your assets and certain financial transactions. Property transfers before filing may be reviewed during the case.

Rather than selling, transferring, or giving away valuable property to keep it out of bankruptcy, determine how the property would actually be treated before taking action.

Be Careful About Repaying Family and Friends

You may understandably want to repay money borrowed from a parent, sibling, friend, or other person before filing bankruptcy.

However, bankruptcy law contains rules regarding certain payments made to creditors before filing. Paying one creditor—particularly someone close to you—while leaving others unpaid can potentially create issues in a future case.

If bankruptcy is a serious possibility, consider obtaining guidance before making unusually large repayments.

Avoid Taking on Unnecessary New Debt

Running up credit cards or taking large cash advances because you expect to file bankruptcy can create problems.

Not every debt is automatically dischargeable, and certain debts involving fraud or other circumstances may be excluded from discharge.

If you are preparing to file, avoid unnecessary purchases and new borrowing and focus instead on understanding your existing financial situation.

Don't Hide Assets or Debts

Complete financial disclosure is an essential part of bankruptcy.

Leaving a bank account, valuable asset, creditor, or other financial information off your paperwork can create unnecessary complications.

Even if you believe a particular asset will be protected or a debt cannot be discharged, it should still be properly disclosed when required. Accuracy is much safer than trying to determine on your own what information can be omitted.

Complete Your Required Credit Counseling

Most individuals filing bankruptcy must complete approved credit counseling within the 180-day period before filing. The U.S. Bankruptcy Court for the Middle District of Alabama warns that, with limited exceptions, a case filed without completing this requirement may be subject to dismissal.

Alabama differs somewhat from most states because the U.S. Trustee Program does not operate there. Bankruptcy Administrators approve the organizations that can provide the required pre-bankruptcy counseling and post-filing debtor education courses in Alabama.

Make sure you complete the correct pre-filing credit counseling course rather than confusing it with the separate financial management course generally required after filing to receive a discharge.

Don't Automatically Stop Paying Every Bill

Considering bankruptcy does not necessarily mean you should immediately stop making all payments.

The appropriate approach can depend on the type of debt, whether it is secured by property, the bankruptcy chapter you may file, and what you want to accomplish.

For example, someone hoping to keep a financed home or vehicle may face different considerations from someone whose financial problems consist primarily of unsecured credit card or medical debt.

Before changing how you pay creditors, understand how those decisions could affect your particular case.

Consider Any Urgent Collection Actions

If you are facing a lawsuit, wage garnishment, repossession, foreclosure, or another serious creditor action, the timing of a bankruptcy filing may become particularly important.

Filing a bankruptcy petition generally triggers the automatic stay, which stops most judicial, administrative, and other collection proceedings against the debtor or bankruptcy estate.

However, exceptions and limitations apply. You should not assume simply planning to file bankruptcy will stop an upcoming collection action—the protection generally begins when the bankruptcy petition is actually filed.

Understand Which Debts Bankruptcy May Address

Bankruptcy can provide substantial debt relief, but it does not necessarily eliminate every obligation.

A bankruptcy discharge releases a debtor from personal liability for qualifying debts and prevents creditors from continuing collection of those discharged obligations. However, certain debts generally cannot be eliminated, including domestic support obligations and some taxes, while student loan debt is subject to separate discharge rules.

Before filing, understanding which of your debts may and may not be discharged can help you determine whether bankruptcy is likely to accomplish your goals.

Prepare Before You File

Bankruptcy can provide a fresh financial start, but preparation matters.

Before filing, take the time to understand your debts and assets, organize your financial records, evaluate Chapter 7 and Chapter 13, avoid questionable transfers or new debt, complete required credit counseling, and consider any pending collection actions.

The goal should not simply be to file as quickly as possible. It should be to enter the bankruptcy process with a clear understanding of your financial circumstances and the relief you are seeking.

How Can Backus Law Group Help?

Backus Law Group assists individuals and families in Montgomery, Alabama, and surrounding communities with Chapter 7, Chapter 13, foreclosure, wage garnishment, creditor harassment, automatic stay, and other debt-relief matters.

Before filing, Gary Backus can review your debts, income, property, and financial circumstances and help you understand which bankruptcy option may be appropriate for your situation.

If overwhelming debt, creditor collection efforts, wage garnishment, or the threat of foreclosure has you considering bankruptcy, contact Backus Law Group to discuss your options and prepare for the process ahead.