There are five steps to take once you've decided to start the bankruptcy process (each of which are more fully discussed below):

• Step 1. Gather your documents.  
• Step 2. Pull together a list of ALL of your debts.  
• Step 3. Get help. 
• Step 4. Decide what type of bankruptcy to file.
• Step 5. Send notices to your creditors. 

NOTE: If you are jumping into bankruptcy without having explored the alternatives, take the time to consider your options. For more information, click here. 

In order to file, you'll need to have the following documents together:

• A detailed list of living expenses.
• Deeds and mortgage statements for any real property you own.
• Papers relating to past bankruptcies.
• Copies of your tax returns for the last two years.
• Other legal debt-related papers, including summonses, complaints, and notices of attachment, execution or garnishment.
• Credit card bills, medical bills and any other documents regarding outstanding debt.
• Statements for each of your savings and checking accounts.
• Student loan papers.

If a debt is not listed on the schedule you file in bankruptcy, it will not be affected by the bankruptcy.

We strongly recommend that you hire an attorney before filing for bankruptcy. If you have not done this before, you are likely to miss something. In addition, things are likely to go smoother at the important first meeting of creditors if the trustee knows your lawyer or at least can see the expertise.

People who have gone through bankruptcy suggest that when choosing a lawyer, look for one who understands what a trauma going through bankruptcy can be. It is helpful to have a lawyer who sympthasizes with people going through the emotional stress of bankruptcy.

Check with your local community service organization to see if free legal assistance is it has staff or volunteers who will help with a bankruptcy filing.

If free assistance is not available, expect to pay about $400 to $1,000 or more in fees, depending on the complexity of your situation.

• Be sure to discuss fees up front.
• If you need to, ask if you can pay in installments.

If your situation does not have any unusual circumstances and you decide to file for bankruptcy without using a lawyer:

• There are lots of bankruptcy do-it-yourself resources available on line or in stationary stores.
• Before you proceed, it is advisable to at least get some general initial advice from a lawyer.

Look at the pros and cons and requirements for the three common types of bankruptcy and determine which is best for you.

All types of bankruptcy affect your credit score for 7 - 10 years. Although the impact depends on your particular situation, the effect could be 100 points.

The biggest difference between Chapter 7 and Chapter 13 bankruptcy is that under Chapter 13 you don't have to sell your assets.

In addition:

• Under Chapter 7, you have to go through financial counseling and education.
• Chapter 7 allows creditors to proceed against any co-signers you have on your debt for full payment. Under Chapter 13, creditors cannot go after co-signers until your payment schedule is completed.
• Chapter 7 is less complicated and, therefore, less expensive.
• Unlike Chapter 7, Chapter 13 does discharge debts that arise from fraud, taxes, child support, and educational loans.
• Most Chapter 7 bankruptcies take from three to six months after credit counseling. Chapter 13 bankruptcies generally last three to five years. The length of time a proceeding takes varies according to where it is filed.

There are three situations in which you should consider a Chapter 13 bankruptcy:

• Steady Income: If you have a steady income that lets you pay off your debt over a period of three to five years, Chapter 13 might work for you.
• Co-Signer: If a friend or relative co-signed one of your debts, a Chapter 13 might be better because, under a Chapter 7, your creditor can hold your cosigner fully responsible. Under Chapter 13 creditors cannot go after your co-signer until after you've had a chance to repay what you can.
• Fraud: If fraud is involved in your debt, it is discharged in a Chapter 13 proceeding, but not a Chapter 7.

Alternatively, if you owe more on your home than it is worth, and you want to start fresh, consider Chapter 7.

If you have a high net worth and a complicated situation, also consider Chapter 13 Bankruptcy.

If you file bankruptcy, immediately send notices to any creditors who are harassing you.  For a sample letter, see Bankruptcy Sample Letter To Creditors.

Reviewed by: Michael Menkowitz, Esq., Fox Rothschild, LLP, Philadelphia, PA