The Bankruptcy Filing Process
There are a number of legally required steps involved in filing for bankruptcy. Failing to complete them can lead to the dismissal of your case.
Before filing for bankruptcy, individuals are required to complete a credit counseling session and acquire a certificate to file with their bankruptcy petition. The counselor needs to assess your personal situation, offer advice on budgeting and debt management, and review alternatives to bankruptcy. You can find the names of government-approved credit counseling agencies in your area by calling the federal bankruptcy court closest to you or by visiting its website.
Filing for bankruptcy involves submitting a bankruptcy petition and financial records showing your income, debts, and assets. You will also be required to submit a means test form, which determines whether your income is low enough for you to qualify for Chapter 7. If it is not, you will have to declare Chapter 13 bankruptcy instead. You will also need to pay a filing fee, though it is occasionally waived if you can prove you can not afford it.
You can obtain the forms you need from the bankruptcy court. If you engage the services of a bankruptcy attorney, which is usually a good idea, they should also be able to supply them.
Once you have filed, the bankruptcy trustee appointed to your case will schedule a meeting of creditors, also referred to as a 341 meeting for the section of the bankruptcy code where it is mandated. This is a chance for individuals or businesses that you owe money to ask questions concerning your financial situation and your plans, if any, to repay them.
Your case will be decided by a bankruptcy judge, based on the information you have supplied. If the court determines that you have attempted to hide assets or committed other fraud, you might not only lose your case but also face criminal prosecution. Unless your case is very complex, you typically will not have to show up in court before the judge.
After you have declared bankruptcy-- but before your debts can be dismissed-- you must take a debtor education course, which will provide guidance on budgeting and money management. Again, you will have to receive a certificate showing that you have participated. You can get a list of accepted debtor education providers from the bankruptcy court or from the Justice Department.
Assuming the court decides in your favor, your debts will be discharged, when it comes to Chapter 7. In Chapter 13, a repayment plan will be approved. Having debt cleared means that the creditor can no longer attempt to collect it from you.
When to Declare Bankruptcy
Bankruptcy law exists to assist individuals that have taken on an unmanageable amount of debt-- often as a result of large medical bills or other unanticipated expenses that are no fault of their own-- to make a fresh start. However it is not a simple process and doesn't always result in a happy ending.
So before filing for bankruptcy, make sure to examine all your options and be ready for some of the negative consequences explained over. If you decide that bankruptcy is your only reasonable option-- as hundreds of thousands of Americans do each year-- remember that the blot on your record will not be permanent. By using credit cautiously in the future and paying your bills on time, you can begin to rebuild your credit and gradually put bankruptcy behind you.