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How to File for Bankruptcy

Date Added: June 16, 2010 04:55:06 PM

If an individual has decided to file for bankruptcy and is ready to start the process there are 7 steps that you can expect to go through for the bankruptcy process. While often times bankruptcy lawyers can assist you with this, it is a good idea to be prepared so that you know what to expect before the process begins.

Step 1: Know Your Status

Before beginning the bankruptcy process, it is important that all your personal financial information is in order. Important items to acquire before your filing include tax returns from the previous 2 years, any deeds to real estate that you may own, car titles, and any loan documents that are in your possession. Also, it is important to have a list of all your debts, both secured and unsecured. Often times ordering your credit report will assist in this process.


Step 2: Get Counseling

Federal Law requires that an individual filing for bankruptcy must seek consumer credit counseling within 6 months of the filing. The counseling agency must also be approved by the US Trustee. This helps to ensure that bankruptcy is the most suitable option and that the debtor has explored all alternative forms of debt relief.


Step 3: Select The Type of Bankruptcy

When filing for bankruptcy, consumers more often than not will file for Chapter 7 or Chapter 13. About 65% of consumers elect to file Chapter 7 which allows the individual to petition the court to discharge a majority of the debt in exchange for property they own. The bankruptcy trustee can take this property and sell it and distribute the proceeds to your creditors. Individuals can make certain properties exempt from collection, and these properties are dictated by state specific bankruptcy code. Make sure to check your state law to determine which assets you are able to keep.

If you are an individual with a steady income, lower amounts of debt, and are not willing to lose any assets, you may want to consider Chapter 13. Instead of seizing your property, the court will approve a repayment plan that allows you to repay some or all of your debts out of your income. Often these repayment plans span from 3-5 years. It is important to remember that while you are repaying your debts that you must have enough income to also support your monthly living expenses. The court may forbid an individual from filing Chapter 13 if their total debt is too high or if their income is inconsistent.


Step 4: File Your Case

Once you have chose which bankruptcy option is best for you, it is time to file official bankruptcy forms which are collectively known as schedules. These schedules ask you to describe recent financial transactions as well as your current financial status. If you have elected to file Chapter 13, you will also be asked to submit a proposed repayment plan with your petition. Once these files are schedules are completed, you must file your petition with the local United States Bankruptcy Court and this will put an “automatic stay” into effect which essentially forces your creditors to stop asking you for money. The fee to file a Chapter 7 bankruptcy is $200 and the fee to file a chapter 13 is $185.


Step 5: Meeting with the Creditors

After you have filed your petition, you will have to meet with the creditors in what is called a “341 meeting.” The debtor is required to attending this meeting and answer all questions about his assets and liabilities under oath. Questions will often come from the trustee that has been assigned to the case, or possibly even creditors themselves, however often times creditors will not attend this meeting. Unless there are challenges, you will often receive a notice from the court that the bankruptcy is discharged. This notice usually comes within four to six months of the 341 meeting.


Step 6 : Evaluating Your Assets

Once the meeting of the creditors has ended, the next step is for the trustee to evaluate your assets and determine if they can be liquidated in order to repay the creditors. For Chapter 7 filings, sometimes the trustee will determine that all assets you own are exempt and a report of no distribution will be filed with the court. In this case it is possible that the consumer may never need to pay a creditor back, however, if assets are determined to be non-exempt they will be liquidated in order to repay the creditors. If you are filing a chapter 13, you will not enter into a 3 to 5 year repayment plan in which you will pay back creditors as much as you can.


Step 7: Notice of Discharge

Creditors have 60 days after the meeting of the creditors to challenge the discharge of your debt and if they fail to do, you will receive a notification of a discharge of debt. This discharge of debt signifies that you have no further obligation to repay your creditors. If you have filed Chapter 13 bankruptcy, you will receive this notice one to two months after your final repayment has been made and the trustee confirms that the repayment plan has been followed fully. In both chapter 7 or 13 cases, it is possible that not all debt is discharged so you may not be completely relieved of your debt obligations. These debts can include taxes as well as student loans. Bankruptcy Code provisions and whether or not the creditor succeeded in persuading the judge that your debt should not be discharged ultimately determine whether a debt is discharged or not.

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