People unfamiliar with the bankruptcy system often assume it will strip them of everything. Many folks will lose something, but the system offers several significant financial and legal protections for petitioners. You should try to maximize those protections, and here's how bankruptcy lawyers will usually encourage their clients to do so.

Thoroughness

One of the biggest potential mistakes in a bankruptcy filing is failing to include the names of all creditors and the attached debts. If you fail to name a creditor in your petition, that party can continue collection actions even if the court rules entirely in your favor. Hire a bankruptcy attorney and have them prepare and check everything before sending it to the court.

Stays

When the court accepts a bankruptcy case, the judge will issue a stay. A stay is a court order that bars creditors from communicating with you or trying to collect while the case is pending. Notably, this doesn't wipe out any debts. It merely protects you long enough to get through petitioning the court for relief and getting a hearing.

However, a stay provides short-term protection from foreclosure or eviction actions. Be aware, though, you must request the stay before an eviction judgment. If a landlord obtained one already, then the bankruptcy court likely won't protect you from it.

Exemptions

Federal bankruptcy laws allow exemptions for reasonable assets. If you own your primary residence outright, meaning there isn't a mortgage on it, you can usually claim an exemption to protect it. The same goes for a reasonable car, clothing, tools of your trade, furniture, and other practical items.

Some states offer further exemptions, including a few that allow exemptions up to certain monetary values. Never assume your state's rules work this way, though. Always ask a bankruptcy lawyer from your state what the laws are.

Note that exemptions only apply in Chapter 7 bankruptcy. If you're filing for Chapter 13, the restructuring process means you don't need to exempt anything because you're still planning to pay.

Leave Protected Accounts Alone

Many types of accounts, especially retirement funds and injury settlement or judgment annuities, are usually insulated from bankruptcy. If you draw on those funds to try to get by financially, though, the money you take out is exposed.

Seek Counsel Early

Waiting for a financial situation to change is a bad idea if you're not sure it will quickly improve. If you feel like bankruptcy is likely, contact an attorney and learn about the process as soon as possible. Waiting may only lead to bigger debts and more pain.