5 Things You Can Do to Increase Your Chances for a Bankruptcy Discharge

Most loans will not receive a bankruptcy discharge. It is a common misconception that debts will simply go away once a borrower has entered the bankruptcy process. A portion of debts, such as the interest rate only, may be forgiven. If you want to have a debt discharged completely, then take the right steps before and during the bankruptcy process to increase your chances.

#1 Stop Spending

You must show the court you cannot afford to pay the debt by any means at all. If you are spending money on any luxury item, even clothing or dining out, the court will be less likely to believe you cannot handle the debt. Instead, you will give the impression of a person with a spending problem. 

#2 Document Hardship

The highest probability of getting a debt discharged will come if you experience a real and present hardship. Examples of hardship include extended illness, debilitating injury or extended joblessness. When any of these occur, you will need to document the circumstances very clearly if you wish to use them as reasons to be excused from debt. Claiming injury is not enough, for example. You need to document each doctor's visit and the explicit details of your condition.

#3 Submit Hardship Request

Before filing for bankruptcy, try submitting a hardship request to each of your lenders to ask for a stay on your loans. Borrowers who take proactive steps to avoid bankruptcy may be able to do so. Even if you eventually declare bankruptcy, the court will see that you have attempted to meet your obligations but were prevented by circumstances outside of your control. This element, the question of whether or not you had control of the circumstances, will be essential in getting your debt discharged.

#4 File Early

Do not wait until collections agencies are pounding at your door or your home is in foreclosure. Once you have exhausted options to refinance, defer or otherwise postpone loan payments, it is time to seek the protection of the court. Borrowers who do not respond to attempts to collect will only anger lenders and make the bankruptcy more complicated. You should respond in writing when you do; this gives you documentation of your response so you can show the court later. It is best to try to establish a payment plan or partially pay debts in the months leading up to a bankruptcy. Again, this shows the court you made a good-faith effort to repay.

#5 Accept Court's Decision

Instead of coming into the court with your own plans for bankruptcy, you can throw yourself at the mercy of the judge's decision. Present all written documentation of your efforts to repay. Submit all hardship documentation. When possible, you should be able to prove your hardship will not be disappearing any time in the future, and you will not be able to meet the debt obligation soon. The court will want to see three things: 1) you made an effort to repay the debt, 2) you have experienced a tremendous hardship outside of your control, and 3) that hardship will not go away in the near future.


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