Should I File For Bankruptcy?
Filing for bankruptcy must be treated as a last resort for those people who find themselves unable to keep up with their expenses. If you have tried all other options such as debt consolidation and debt planning, then declaring yourself bankrupt might well be the best option in order to get yourself out of this financial crisis.
Options When Filing Bankruptcy
Essentially, you have two options when filing for bankruptcy: going to a lawyer or choosing the DIY (do it yourself) route. Now, each option comes with pros and cons, ultimately giving you the chance to weigh one against the other. Here are just some of the most relevant points to make when comparing lawyer and DIY filings.
Choosing a Lawyer
Pro: Your chances of success is immensely bigger than a DIY approach.
Pro: The lawyer will handle almost all the paperwork associated with the process.
Pro: You have access to legal advice in the event of problems with the filing.
Con: Lawyers need to be paid for their service, which can be counterproductive considering how you are declaring yourself devoid of assets.
Opting for DIY
Pro: There is no need to pay a lawyer several thousand dollars when filing.
Con: Your success rate is smaller with no attorney to represent your case.
Two Types of Bankruptcy
There are two types of bankruptcy that individuals can file for in the United States. There is the Chapter 7 clean slate bankruptcy and the Chapter 13 debt reorganization approach. Here is what you should know about each one:
Filing for Chapter 7 bankruptcy means that you are liquidating ALL your assets and using those to pay off your creditors. It is a clean slate approach because you will not be holding on to any property during the process. Upon liquidation and payment, creditors will discharge all other remaining debts left unpaid by the proceeds.
Chapter 13 essentially promotes reorganization and scheduling of the debt. Individuals who apply for this bankruptcy chapter typically hold on to some of their assets even while selling off some in order to pay for their debts. Payments are made on a routine basis spanning a set number of years. After the time limit, all debts left unpaid are discharged by the creditor.
Filing for Chapter 7 Bankruptcy
Filing for Chapter 7 bankruptcy on your own takes time and patience, considering how you will be taking all the steps without professional help. Fortunately, the government has made it a little bit easier by making certain forms available online. The following is a general step by step guide on how to file for Chapter 7 bankruptcy on your own:
Find out Your Qualifications
First things first, you must find out if you actually qualify for a Chapter 7 Bankruptcy. To do this, you can find a Means Test form online and just fill in the necessary information. This will determine whether you are qualified for a Chapter 7 and if this is not the case, then you will have to opt for a Chapter 13 bankruptcy case.
In here, you declare your intention to file for bankruptcy, stating the factors that led to the said decision. This usually involves a list of your income and liabilities. It is usually a good idea to request your credit report from all three bureaus, giving you the chance to consolidate and compare your liabilities. Another great thing about this is that it contains the addresses of your creditors which will be needed in the petition form.
Credit counseling when filing a Chapter 7 Bankruptcy is mandatory but do not worry, this is a no-fail exam. This will cost around $30 but in some cases, the fee may be waived. The credit counseling form must be marked as completed and included with your petition, otherwise your request will be denied or sent back without further questioning.
Organizing the Paperwork
It is time to do a recheck of the paperwork, ascertaining that they are complete before filing. This is crucial since you do not want your papers to be sent back, rejected, or ignored – especially if creditors are already on your door asking for their money. Now, this is one of the most exhausting processes in the filing procedure, mainly because you are not completely familiar with the documents needed.
A good way to prevent yourself from blundering is by using bankruptcy software in order to help you with the paperwork. Make sure to find one that is up to date, ensuring that all your submissions are up to code. The software may be purchased while there are others out there which are available for free – the choice is obviously up to you.
Warning! Take your time with organizing the paperwork process. The fact is that the court will inform you if you have forgotten to send some forms their way, but they will not tell you if some of them are incorrectly labeled. If you also forgot to list down some assets, you can be sure that this will negatively affect how things will turn out for you. Make sure that everything is properly filled out – triple check if necessary in order to avoid possible problems.
Actual Filing Process
Once the paperwork is finished, the actual filing process begins. This starts with you finding out your Federal Court Jurisdiction. This is where your paperwork will be filed to be discussed later on. The actual filing process is comprised of you just giving your papers to the court clerk upon which, you will be given a case number and a receipt. Payment is around $335 although this may be waived if you have applied for a waiver. Note though that the amount is not exact and it depends largely on your state of jurisdiction.
Automatic Bankruptcy Stay
This is where the good part starts – when you have successfully filed for bankruptcy, creditors are automatically forbidden from contacting you in pursuit of payment. From here on out, the problem will be discussed in court and any manner of contact to obtain payment is considered a violation of the law. Along with the Stay, you will also be informed of the judge handling your case, the name of the trustee, and the court date where you will be meeting with the creditors.
Meeting with Creditors
The meeting with creditors is scheduled 40 days after filing your petition. The date and time will be indicated in the receipt given by the clerk. Make sure to attend this meeting since this will be your chance to state your case to the creditors. Note though that before the creditor’s meeting, your trustee should be sent documents relating to your finances. More specifically, he or she should receive a copy of your paycheck stubs and income tax return. This validates the income side of your argument, therefore making it clearer that your expenses are way beyond what you receive each month, factoring in the taxes that you dutifully pay as a citizen of the United States. This must be done at least one week before your meeting with the creditors.
Prior to the meeting with the creditors, chances are your trustee will try to contact you for one reason or another. This could be because you have forgotten something or they want to verify specific information. Make sure to respond to this inquiry as soon as humanly possible.
If you have a lawyer, a meeting with the creditors will go a bit more smoothly because you will have a professional speaking on your side. As it stands, you will have to carry the torch all by yourself, offering valid reasons as to why your bid for bankruptcy should be approved. Note though that a meeting with the creditors is not always possible. In most cases, unsecured debts do not warrant the presence of representatives so a meeting is not always suggested.
After the meeting, you should go through a Personal Financial Management Instruction Course within 45 days after meeting with your creditors – whether it occurred or not. Doing so will increase your chances of being approved in your bankruptcy case, allowing yourself to start again with a clean slate.
Filing for Chapter 13 Bankruptcy
Learning how to file bankruptcy under Chapter 13 runs pretty much through the same process as filing for a Chapter 7 Bankruptcy. You will have to:
- Find out whether you qualify for a Chapter 13 Bankruptcy.
- Find out your income and compare it with your expenses. Obtaining your credit report from all three bureaus is another must in this occasion, thereby giving you a clear picture of what you owe from all your debtors.
- Analyze your income and figure out exactly what assets you intend to hold on to. Understand that under Chapter 13 Bankruptcy, specific properties are exempted so you cannot actually choose which ones you want to keep. There is a limit of possible assets that can escape liquidation when filing for bankruptcy.
- Understand how much you will have to pay on a monthly basis under the Chapter 13 Bankruptcy form. Your income must meet certain requirements since Chapter 13 is essentially a debt consolidation or reorganization. Through this process, you will be able to figure out exactly how much you will have to pay for the debt and how long you will have to pay it before the credit is discharged.
- The form filing is the most extensive part of the procedure, and also the one that requires most of your attention. Again, there is typically software designed to help you with this problem. Make sure to double or even triple check your forms before filing them with the court clerk.
- Unlike Chapter 7, a Chapter 13 Bankruptcy may require two hearings upon which, your creditors may show up together with your trustee. In here, the terms will be discussed with the intent of agreeing on a specific amount of payment and the length of time it will be paid. This is your chance to state your case and convince the trustee of the rightness of your Chapter 13 petition.
Once approved, you will have to start making your monthly payments to the creditors. At this point, the creditors will also stop calling or harassing you to make the necessary contributions to your debt. After the allotted time has passed, you will receive your discharge papers for the remaining amount left unpaid.
Typical Bankruptcy Schedules
Bankruptcy schedules refer to the information you will be disclosing during the procedure. The following are some of the most common information that will be required:
- Personal property;
- Real property;
- Properties declared exempt;
- Creditors who are holding secured claims or those backed up by some of your assets;
- Creditors who have unsecured priority claims;
- Creditors with unsecured non-priority claims;
- Unexpired leases and executor contracts;
- Co debtors;
- Your expenses and income.
Pros and Cons of Filing for Bankruptcy
As much as possible, filing for bankruptcy must be avoided because this is something that will negatively impact your credit report in a way that is hard to imagine. In some cases, however, there is no other way of approaching the problem but by declaring yourself bankrupt. So how exactly do you decide whether it is time to throw in the towel or start looking for other methods? Here are some pros and cons of filing for bankruptcy:
Gives you the chance to have peace of mind, away from all the creditors hounding you for payment.
You will be able to better handle your current finances, ensuring that daily needs are properly met.
You will be able to start from scratch without worrying about the burden of debts.
Starting from scratch can be tough and you will have a hard time building up your credit score. This translates to sky-high interest rates on any loans made.
Your bankruptcy petition will be evident on your credit report for the next 10 years.
Learning how to file for bankruptcy on your own is crucial, especially if you do not have the dollars to spend on a good lawyer. Understand though that your chances of getting approved decreases with the lack of expert advice. In the event of difficulties though, there are currently lawyers working pro bono when it comes to bankruptcy cases. You can try contacting them for help without having to pay thousands for their expert representation.