Have you made the difficult decision to seek financial relief from debts through bankruptcy? While this is hard for most Americans, it means a fresh start and an end to the terrible consequences of crushing debts.

However, before you actually file your bankruptcy petition, you should do many things to prepare yourself and your finances. Some of the most important financial preparatory steps involve your bank. What should you do with your bank accounts before the big day? Here are three key items for your to-do list.

1. Start a New Account

Do you have a bank account at the same institution where you also have a debt? This could include a mortgage, car loan, student loans, personal (or signature) loans, or a credit card. If so, consider opening an account at a different bank for use both before and after the bankruptcy.

Why take this somewhat drastic step now? Basically, the bank might put a hold on your account and prevent you from accessing your money if you owe money on their loan. Even if that money is eventually declared exempt from the bankruptcy, you could be without it for weeks or months. Avoid potential problems by opening a new account elsewhere and transferring your direct deposits and certain automatic payments.

Along with protection from freezes or garnishments, switching to a new account also helps you weed through any unnecessary automatic payments you may not want to continue. Look for unwanted payments that you simply may not need – such as subscriptions, donations, or added services. Even more importantly, you may want to stop paying on assets you don’t intend to reaffirm in the bankruptcy – such as your car or home loans.

2. Clear All Payments

The date that you file for bankruptcy with the court system is a key date during this entire period. This is generally the date on which your assets and liabilities are considered to be part of the bankruptcy filings. If you got paid that day, for instance, that paycheck might be considered an asset the court can use to settle creditor claims – even if that money was then used to pay your rent afterward.

Avoid unnecessary problems by planning in advance for your bank balance on the day of filing. Be sure any checks for the month are written and cleared before the day of filing. If you need to pay something after the filing date, consider taking out a cashier’s check for immediate clearing. You may also want to work with your attorney to determine the best date to actually file based on your income and expense history.

3. Switch to Cash

Just about everyone is aware that bankruptcy will disrupt your credit for several years. This will be an inconvenience, but it doesn’t need to be debilitating if you prepare for a cash-based lifestyle now. If you won’t have access to credit or debit cards, you’ll want to be in the habit of using physical cash, checks, and cashier’s checks instead. Start now to help transition to a life that’s less reliant on sources of credit.

In addition, most people find that using cash for daily expenses is an excellent way to reduce spending and add more to savings. Since you won’t be able to get easy credit
as a safety net for a while, controlling expenses and building cash reserves will be vital to maintaining your lifestyle and having reasonable comfort and enjoyment.

Preparing for bankruptcy isn’t something you should attempt on your own. This process is complex and fraught with financial risks if mishandled. For the best results, work with an experienced bankruptcy attorney as early as possible.  Fran H. Hollinger Attorney at Law can help. Call today to schedule a free consultation about your specific situation.