The Bankruptcy Filing Procedure
There are several legally required steps involved in filing for bankruptcy. Failing to complete them can result in the dismissal of your case.
Before filing for bankruptcy, individuals are required to complete a credit counseling session and obtain a certificate to file with their bankruptcy petition. The counselor should evaluate your personal situation, offer guidance on budgeting and debt management, and discuss 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 statements 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 need to file for Chapter 13 bankruptcy instead. You will also need to pay a filing fee, though it is sometimes waived if you can prove you can not afford it.
You can get the forms you need from the bankruptcy court. If you use the services of a bankruptcy attorney, which is generally a good idea, they should also be able to provide them.
When you have filed, the bankruptcy trustee assigned to your case will arrange for a meeting of creditors, also referred to as a 341 meeting for the section of the bankruptcy code where it is mandated. This is an opportunity for individuals or companies that you owe money to ask questions regarding your financial situation and your plans, if any, to repay them.
Your case will be determined by a bankruptcy judge, based on the information you have supplied. If the court decides that you have tried to conceal assets or committed other fraud, you may not only lose your case but also face criminal prosecution. Unless your case is very complicated, you usually won't have to show up in court before the judge.
After you have declared bankruptcy-- but before your debts can be discharged-- you have to take a debtor education course, which will offer advice on budgeting and money management. Once again, you will have to obtain a certificate showing that you have participated. You can get a list of approved debtor education providers from the bankruptcy court or from the Justice Department.
Assuming the court decides in your favor, your debts will be cleared, in the case of Chapter 7. In Chapter 13, a repayment plan will be approved. Having debt dismissed means that the creditor can no longer attempt to collect it from you.
When to File for Bankruptcy
Bankruptcy law exists to help individuals who have taken on an unmanageable amount of debt-- often as a result of large medical bills or other unexpected expenses that are no fault of their own-- to make a fresh start. However it isn't a simple process and does not always result in a happy ending.
So prior to declaring bankruptcy, be sure to examine all your alternatives and be ready for some of the negative consequences explained above. 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 carefully in the future and paying your bills on time, you can begin to restore your credit and gradually put bankruptcy behind you.