The Bankruptcy Filing Process
There are several 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 obtain a certificate to file with their bankruptcy petition. The counselor should review your personal situation, offer guidance 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 going to 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 isn't, you will have to declare Chapter 13 bankruptcy instead. You will also have to pay a filing fee, though it is occasionally waived if you can prove you can't afford it.
You can get the forms you need from the bankruptcy court. If you enlist the services of a bankruptcy lawyer, which is generally a good idea, they should also be able to supply them.
Once you have filed, the bankruptcy trustee designated to your case will schedule a meeting of creditors, also known as a 341 meeting for the section of the bankruptcy code where it is mandated. This is a chance for the people or companies that you owe money to ask questions about 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 provided. If the court determines that you have attempted to conceal assets or committed other fraud, you might not only lose your case but additionally face criminal prosecution. Unless your case is very complex, you typically will not have to appear in court before the judge.
After you have filed for bankruptcy-- but before your debts can be dismissed-- you have to take a debtor education course, which will provide advice on budgeting and money management. Once again, you will have to receive 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.
Presuming the court decides in your favor, your debts will be absolved, in the case of Chapter 7. In Chapter 13, a payment plan will be approved. Having debt cleared means that the creditor can no longer attempt to collect it from you.
When to File for Bankruptcy
Bankruptcy law exists to assist people that have taken on an unmanageable amount of debt-- commonly 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 does not always lead to a happy ending.
So before declaring bankruptcy, make sure to examine all your options and be prepared for some of the negative consequences defined over. If you decide that bankruptcy is your only reasonable option-- as hundreds of thousands of Americans do every year-- keep in mind 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 start to rebuild your credit and gradually put bankruptcy behind you.