How to File Bankruptcy in 10 Simple Steps

To relieve themselves of their debts and to start over with a clean slate, a citizen’s able to use a federal law to declare bankruptcy. There are both benefits and disadvantages to filing for bankruptcy with it commonly only used as a last resort.

If you cannot negotiate a way to settle loans, repayments, or to sell assets to cover your debts, here’s how to file a bankruptcy in ten simple steps:

1. Different types of bankruptcy

Chapter 7 bankruptcy applies to individuals or businesses below a certain income level, liquidating property and other assets to pay off creditors. Chapter 13 allows you to propose a repayment plan to creditors to repay within 3-5 years, although your income must be reliable and certain requirements apply.

These are the two main types of bankruptcies that apply to an individual, although there are others such as Chapter 9, Chapter 11, and Chapter 12.

2. Understand what does not apply

Bankruptcy protection does not clear all your debt. Depending on the state law, bankruptcy potentially may not apply to alimony, child support, post-bankruptcy debts, debts incurred in the six months prior to filing for bankruptcy, loans obtained through fraudulent means, debts via personal injury while driving intoxicated, debts from malicious injuries to person or property, tax-related debt, student loans, and secured loans.

3. Bankruptcy proceedings will sell assets

To cover your debts, in a bankruptcy proceeding, valuable assets will be sold off to repay creditors. There are some assets that may be protected from this including certain cars, any wedding rings, and your home.

Bankruptcy also will negatively impact your credit. Some end up taking a huge hit on their credit score by declaring bankruptcy although there are several variables that go into this.

4. Filling out the forms

If you want to learn how to file for bankruptcy, just be prepared there’s a lot of paperwork available. Although you can file without an attorney, it’s recommended to hire a bankruptcy attorney to assist in simplifying the process. To file for Chapter 7, first, you must see whether you qualify. Your income must be below a certain level.

If you do not, Chapter 13’s the way forward. Fill out the necessary forms, listing all property, debt, income, and expenses. Keep in mind there’s a lot of forms to fill out. All debts must be listed. Any that are not could mean you retain them post-bankruptcy.

5. A bankruptcy trustee

When you come to file your forms before the Courts, you will be assigned a trustee to work on behalf of your creditors. The trustee verifies all the information submitted, examines property, determines how much of your assets you can keep, and determines whether there are any exemptions.

Please note much of the process of filing for bankruptcy is administrative and does not necessarily require you to appear before the Courts. In fact, you are unlikely to receive a notice asking you to stand before a judge. It’s all done outside of the courtroom, on your behalf.

6. Credit counseling

An individual filing for bankruptcy is required to receive credit counseling. This is done before a bankruptcy filing. Then, a debtor education program must be completed after filing. Certificates of completion must be presented before the courts confirming your participation.

7. Meeting with creditors

A formal meeting with creditors is required in the bankruptcy process, known as the 341 meeting. Debtors must face their creditors to answer any questions about their debts and/or property. Approximately one month after your bankruptcy is filed, this is when a meeting is typically scheduled.

In this meeting, you will be required to answer a lot of questions about why you are filing for bankruptcy protection in addition to arrangements being made to sell non-exempt property and to pledge property as collateral for any secured loans you may have.

8. The discharge

Only when you are awarded a bankruptcy discharge are you no longer required to repay the identified debts. When awarded, this is permanent. Creditors can take no further action against you. The Courts can deny a discharge if you haven’t completed the required counseling and education courses. In a Chapter 7 case, a discharge is typically granted within 60 days of your 341 meeting which means you should have it about 4 months after you’ve filed for bankruptcy.

9. No guarantees

There is no guarantee of a discharge being granted. Creditors can object or block it, the courts can deny you a discharge, or if you haven’t provided the necessary documentation, a discharge can be denied. Alternatively, if any creditor files a complaint objecting to a discharge or files to dismiss the case, it could take longer to obtain.

This is all important to remember. Even filing for bankruptcy, after paying all the fees and going through the hassle, there is no right a discharge will be provided. It is ultimately up to the Courts to make that decision.

10. Keep copies of everything

Keep copies of your discharge court papers proving debts have been discharged. If a creditor attempts to come after you to collect old debts, you have the legal documents protecting you. Creditors can claim discharges were obtained dishonestly. Having the court’s decision printed and ready to show can be key to protecting yourself.