You might have spotted some signs that you're headed toward a deep financial hole. You've been skipping payments on your mortgage or car loan or maybe you've been maxing out your credit cards. Repeated calls from creditors demanding their money might tell you something, too.

A low credit score would seem to be a strong hint, but it's not always a good gauge. Barry Paperno, manager of consumer operations at Fair Isaac Corp., a leading developer of credit scores, says consumers who file bankruptcy can have very different credit histories with a wide range of FICO risk scores at the time they file. And they can be affected in very different ways.

"The degree of the effect on each consumer will vary depending on other factors evaluated by the FICO score, such as the length of credit history, amount of credit obligations paid as agreed, other delinquency/derogatory items, amount of credit used, types of credit used and search for new credit," he says.

Attorneys say that if you do have to file bankruptcy, preparation and timing are extremely important, especially with the new provisions in the law such as the Chapter 7 bankruptcy "means test," which determines a consumer's disposable income.

"You need to average the income over the prior six months," says Marc Stern, co-chair of the Bankruptcy Committee of General Practice solo division of the American Bar Association. "If the debtor lost a high-paying job, the longer between the job loss and filing the better. The wait probably presents a more factually correct analysis of the debtor's situation.

"There are other factors: If a medical problem has not been stabilized, there is no reason to file, or, if anything, file a 13. It can be dismissed or converted at a later time. If the debtor is not employed, why file? There is usually nothing for a creditor to pursue. Wait and file shortly after they get a job."

But don't wait too long to seek help, especially if you are faced with a legal action such as a mortgage foreclosure, car repossession, wage attachment or an inevitable loss of property.

Also, be extremely mindful of your spending. Monitor your use of credit cards. The American Bankruptcy Institute advises that once you've decided to file bankruptcy, stop using the cards.

Experts warn that anything you purchase knowing you won't pay is considered fraud under the bankruptcy law and that debt won't be discharged. Buying luxury items such as a high-definition television or services like a day at the spa and/or taking out cash advances within two or three months before you file won't be discharged, even if, at that time, you didn't think you would file.

So, the decision is made. You believe filing a Chapter 7 liquidation or a Chapter 13 repayment plan bankruptcy is the best move to eliminate your mounting debts and end constant calls from creditors. What's next?

Gather financial documents
The new law has added a series of provisions to tighten loopholes by requiring more paperwork. A case can be dismissed for failure to provide all required documents and information. So an organized pile of essential documents not only smoothes out a very detailed process but also saves time and most importantly, money. Prepare a list of assets, debts, income and lawsuits, and put together all financial documents such as pay stubs, receipts and tax returns relevant to the list

Bankruptcy costs
The bankruptcy process can be expensive. Costs include the attorney's fee, the bankruptcy filing fee and now credit counseling fee. The charges vary from state to state. Brad Botes, consumer bankruptcy attorney in Birmingham, Ala., and former executive director of the National Association of Consumer Bankruptcy Attorneys, says that, based on his communications with practitioners around the country, the costs for a Chapter 7 bankruptcy fiing can be as low as $600 to $700 and as high as $3,500 for your attorney's fees.

Some attorneys and scholars suggest preparing to pay $1,200 to $2,500 for a Chapter 7 bankruptcy. Botes says costs for Chapter 13 bankruptcies are set by the local bankruptcy court, and these costs have ranged as low as $1,500 and as high as $3,500.

The court-filing fee for a Chapter 7 bankruptcy filing is $299. A Chapter 13 is $274.

The Department of Justice's Executive Office of the U.S. Trustees, which enforces bankruptcy laws, has not announced what it considers a reasonable fee for bankruptcy counseling, but you should expect to pay as much as $50 each for both the pre-filing and pre-discharge counseling services.

However, credit counseling must be provided regardless of the debtor's ability to pay. Jane Limprecht, spokeswoman for the U.S. Trustees Program, says a number of factors might affect the debt management course fee, such as length and depth of education, because the courses range from "basic to more comprehensive."

Also, know that additional fees can arise when you file. The fees can creep up when changes are made or additional litigation occurs.

Pre-filing credit counseling
The new law requires debtors to participate in pre-filing credit counseling within the six months prior to filing bankruptcy. A debtor can contact a government-approved credit counseling agency in his or her district. The list of credit counseling agencies can be obtained from places such as the federal bankruptcy court and the U.S. Trustees office.

Credit counselors are required to examine the debtor's financial situation, find out how the debtor got in his or her financial mess, and figure out ways to handle the debt in the 90-minute session. The session is taught face to face, over the phone or via the Internet. The debtor is provided a certificate upon completion of the program. This certificate must be included in the paperwork that will be filed with the court.

A bankruptcy attorney may provide a list of nonprofit credit counseling agencies and direct you to an agency, but some in the credit counseling industry suggest talking to a bankruptcy credit counselor before visiting the attorney.

"There are far too many (debtors) that go to a bankruptcy attorney first. Obviously, the attorney will want them to file," says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies.

Jones says debtors should go to a credit counselor independent of the lawyer because the counselor could recommend options other than bankruptcy. Once the counselor suggests bankruptcy, Jones advises heading to an attorney right away.

However, Botes says an individual, "should exhaust every option they have before declaring bankruptcy," and says that a good attorney is qualified to advise options, has experience with bankruptcy courts and will do his or her best to prevent the debtor from filing.

Find a good bankruptcy attorney
Many consumers are completely clueless about bankruptcy procedures and laws, so bankruptcy experts suggest consumers go to attorneys who are board-certified in consumer bankruptcy law. The experts also suggest talking with a couple of attorneys to determine who can provide the best representation. One way to select an attorney and learn more about the bankruptcy process is to visit a bankruptcy court and watch the attorneys in action. Also, some questions that can help you find a lawyer who will best fit your needs are:

Questions to ask:

·          How many bankruptcy cases do you file each month

·          How many cases have you had where the U.S. Trustees moved for dismissal for abuse?

Stern says that if the attorney files five to 10 cases each month, he or she probably has sufficient experience. If the attorney has never filed, “Run,” he says.

He adds that when the attorney has cases where the U.S. Trustees moved for dismissal for abuse, the attorney probably didn’t do a good job or is an attorney who takes very hard cases. If the latter is the case, he’ll most likely charge more.

Stern also suggests asking whether the attorney has written an article in the area.

"You want to know that the attorney keeps up with the law and knows what is happening. One of my clients once told me that the most expensive thing she ever bought was a cheap attorney. Price should be on the list, but that comes only after determining competence."

If your situation is dire, you may be able to get help on a pro bono, or free, basis. Check with a legal aid bureau or bar association.

Bankruptcy timeline: Filing bankruptcy

With your bankruptcy attorney in tow and essential documents in hand, it is now time to file for bankruptcy, which means filling out a substantial amount of paperwork.

"There is a petition, schedules showing all assets and liabilities, a statement of income and expenses, a statement of affairs -- which attempts to elicit more information about the debtor's financial affairs -- and in a Chapter 7, a means-test calculation, a statement of intent concerning secured debt and various disclosures that the debtor is required to have," says Marc Stern, co-chair of the Bankruptcy Committee of General Practice solo division of the American Bar Association.

"A Chapter 13 filing has the same materials, minus the statement of intent and the means test. Instead, it has a Chapter 13 plan."

The "Chapter 13 plan" is a repayment plan that can extend from three to five years. The plan establishes a set amount that must be given to the trustee appointed to the case either biweekly or monthly. Also, the Chapter 13 repayment plan must be filed at the time that the bankruptcy petition is filed or within 15 days of that.

Chapter 13 bankruptcies are for debtors with regular income who have unsecured debts less than $307,675 and secured debts less than $922,975. These numbers are subject to change based on the Consumer Price Index. If the consumer owes more than those amounts, he or she has the option to file a different bankruptcy chapter depending on their debts and income. Consult an attorney to find out.

If employed, the debtor must provide to the court evidence of 60 days of income from their employer -- for example, check stubs.

Once the petition is filed, collectors can no longer take action against the debtor or the debtors' property, creating an "automatic stay." This stay can only be for a short period of time, but will vary. A Chapter 13 bankruptcy also has a "co-debtor stay." This can stop creditors from trying to collect from someone else who might have some responsibility for the debt, for instance, the co-signer on a loan.

Rebuilding your credit
According to the Mortgage Bankers Association's Home Loan Learning Center, it is possible to start rebuilding your credit even while you're filing bankruptcy. The center suggests keeping one credit card account open when you file.

Kevin Chern, president of StartFreshToday Inc., a research resource for bankruptcy lawyers, explains how this can be done:

"If you have no outstanding balance on an account, you are not required to list the account in your bankruptcy filing and the creditor won't be notified directly of your bankruptcy. Sometimes, a lender will allow a zero-balance account to remain open. Even if you have a small balance that you pay each month, some lenders will allow you to keep the account if you keep it current.

"Obviously, you should consult with your attorney as to whether you can afford to maintain the debt payment. Also, if the creditor wants you to sign a reaffirmation agreement, under the new law, your attorney also has to agree that maintaining the debt is not an undue hardship on you."

Meeting with the creditors
Once the petition is filed in the bankruptcy court, in your district, you will have to meet with the creditors listed in your paperwork. According to the Administrative Office of the U.S. Courts, this meeting would typically occur within 20 to 50 days of filing for a Chapter 13 filing and 20 to 40 days for a Chapter 7. The meeting is known as the "341 meeting of creditors," or "341 meeting" named after that particular section in the law. Bring proper identification, such as your Social Security card and/or driver's license, and also provide copy of your most recent tax return for the trustee.

Jane Limprecht, spokeswoman for the U.S. Trustees, says a private trustee will preside over the meeting.

"The trustee's duties at the meeting include such actions as administering the oath; questioning the debtor about assets, liabilities, property and other relevant information; supervising as creditors question the debtor; and carrying out other related duties," she says.

In a Chapter 7, the trustee liquidates the debtor's nonexempt property, which is property that can be seized to make payments to creditors. In a Chapter 13 bankruptcy, the trustee determines whether a repayment plan should be approved.

Predischarge personal financial management education course
Before your debt can be discharged, you will need to complete a financial education course that should last approximately two hours through a government-approved credit counseling agency, face-to-face, over the phone or via the Internet.

"The court has to have agreed to hear the debtor's bankruptcy case, and the bankruptcy petition must be filed before the debtor can take the personal financial management education course," says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies.

He says the lawyer will tell the debtor that the petition has been accepted or, if there's no attorney, the court will contact the debtor.

Topics addressed in the course include rebuilding finances after bankruptcy, developing a budget, understanding and using credit, "predatory lending" and identity theft. The debtor will need to provide a certificate of completion to the bankruptcy court.

Bankruptcy discharge
Once you've received a form indicating that you are free of the debts in your petition, called a discharge, you can forge ahead and get your life back on track.

Chapter 7 bankruptcies can take as long as six months to be discharged. A Chapter 13 ranges from three to five years for discharge, but the timing depends mostly on the repayments.

Of course, some items won't be discharged. These include most taxes, child support, alimony and most student loans.

Some bankrupt consumers who have lost jobs prior to or during bankruptcy might fear that they will have a hard time securing work with thess negative mark on their credit reports. Employment lawyers say bankrupt consumers can ease their concerns by simply being honest.

"If difficult personal circumstances led to the bankruptcy, these should be explained as briefly but forthrightly as possible," says Linda Correia, a partner at Webster, Fredrickson & Brackshaw in Washington, D.C. However, she says, an employee shouldn't let the bankruptcy questioning go too far.

"For example, if high medical bills forced the bankruptcy, the employee need not discuss his or her medical illness or that of a loved one. If a divorce and foreclosure led to a bankruptcy, the employee need not answer intrusive questions about her family situation or child care.

"If the individual was terminated from his or her previous employment and financial problems ensued, the individual need not feel compelled to give an opening to the employer to delve into the previous employment problems," says Correia.

Although you have the negative mark of a bankruptcy on your credit report, it is possible to make a fresh start and rebuild your credit, especially with the financial knowledge gained from credit counseling and a well-crafted budget.

Bankruptcy timeline: Rebuilding credit

You've filed for bankruptcy. Now it's time to start rebuilding your credit.

It will be hard to get credit at the start, but it won't be impossible. The bankruptcy on your record means you will have to pay more to borrow money, since you'll probably be considered a subprime borrower. Subprime borrowers pay higher interest rates and penalties for defaults because they are considered a greater risk.

Kevin Chern, president of StartFreshToday Inc., an information resource for bankruptcy lawyers, says that when a person files Chapter 7 liquidation bankruptcy, the debtor immediately and dramatically reduces his or her debt-to-income ratio.

"You also eliminate your ability to qualify for Chapter 7 for another eight years. In the eyes of a potential lender, you may actually appear to be a better risk immediately."

He says that most Chapter 13 petitioners also will see a reduction in debt-to-income ratio, but this won't occur as quickly.

"After three to five years of living on a strict budget, Chapter 13 debtors should be much more equipped to manage their money efficiently. In many cases, after 18 months of regular Chapter 13 payments, a debtor can refinance out of a Chapter 13, especially if the debtor has any equity in a home."

Bankruptcy experts advise consumers to try not to borrow money too quickly. Instead, they should make timely payments every month to help re-establish their credit and get loans on more favorable terms.

Jessica Cecere, president of the Consumer Credit Counseling Service of Palm Beach County/Treasure Coast of Florida, suggests waiting until your credit score has increased.

"650 or above is when you can shop for a decent rate," she says.

Also, keep an emergency reserve.

"Bankrupt consumers are in a better position to save because they've eliminated their debt and they need to plan for their financial future again," says Cecere. "I always say save 10 percent of your income, and the minimum is whatever you can manage. Save pennies or change if you have no room in your budget and you are paying off debt."

Debtors are advised to watch out for predatory-lending scams and payday loans. Predatory lenders seek credit-impaired consumers and charge them exorbitant fees for borrowing money. Payday loans let consumers postdate a check for the amount of the loan and the fees for taking out the loan. Those fees are the killer. Credit counselors say you could end up paying as much as 400 percent interest with a payday loan.

Restoring your credit rating
Bankrupt consumers should keep a close eye on their credit reports and credit scores. The consumers should get a copy of their reports from all of the major credit reporting institutions: Equifax, Experian and TransUnion. The reports should be examined for errors, missing and/or inaccurate information regarding current residence, employment and personal contact information. TrueCredit, a provider of consumer credit management services, recommends checking to make sure pre-bankruptcy debts are recorded as "included in BK."

Some experts suggest avoiding credit repair agencies.

"There are many unscrupulous agencies out there that will claim they can remove a bankruptcy or fix a credit report," says Samah Haggag, manager of analytics for Experian. "There is nothing a credit repair organization can do that you cannot do yourself."

The 2005 Experian National Score Index study has shown that the national average credit score for a consumer with a bankruptcy in their credit report is 604, about 70 points below the average score for consumers without a bankruptcy. Currently, the Experian National Score Index has calculated the average credit score for consumers without a bankruptcy at 677, but the number is updated on a monthly basis.

Experts say the degree of improvement in a score will vary. Barry Paperno, manager of consumer operations at Fair Isaac Corp., explains that this will depend on "what the consumer's score was prior to the bankruptcy filing as well as to what degree the bankruptcy affected the consumer's score, how much new debt has been established and the time elapsed since the bankruptcy discharge."

Credit cards
One way to start improving your credit is to open a secured credit card account right after you are discharged from a bankruptcy. Simply head to a bank, fill out an application and make a deposit into a secured account. The bank, in turn, provides a credit card with a credit line that's 50 percent to 100 percent of the deposit. The Federal Trade Commission says that the bank will usually pay interest on your deposit.

Ben Woolsey, spokesman for Creditcards.com, warns consumers that they can expect to pay an annual fee for a secured credit card. And the annual percentage rates for secured credit cards may range from 15 percent to 23 percent, rates that are higher than most unsecured cards.

Be prepared to pay application and processing fees, and check to see whether you will get a refund if you're denied the card. Compare the total fees required before signing anything.

Also, confirm that the bank reports your credit card limit to the major credit card bureaus, offers periodic credit increases and doesn't report the card as secured.

Orchard Bank, for example, offers secured credit cards with a minimum deposit of $200 and a maximum of $15,000 to a person that's of legal age, has a telephone in their home and is a U.S. resident with a valid Social Security number. The company will recommend a specific MasterCard that fits the consumers' needs and credit profile, and the credit limit is equal to 100 percent of the deposit.

Bankrupt consumers can use Bankrate's credit card search to find other providers of secured credit cards.

"Once a person has established a regular pattern of making their payments on time, the issuer of the secured credit card will normally increase the credit limit to comparable levels with a regular, nonsecured card," says Woolsey.

Woolsey adds if the bankrupt consumer maintains a positive credit history he or she could qualify for an unsecured credit card within one to two years.

Purchasing a home and carUltimately, the time at which a bankrupt consumer can purchase a home or a car varies from lender to lender.