If you are in financial trouble and considering bankruptcy, it is important to understand how the process works. A bankruptcy attorney can help you determine whether the process is right for your needs and guide you through the filing. Bankruptcy is governed by federal law, and there are specific steps you must take to file. These include undergoing credit counseling, submitting detailed financial information, and attending a meeting of creditors made mandatory by Section 341 of the U.S. Bankruptcy Code. You will also have to submit tax returns and pay stubs, if you are employed.
If you want to file for Chapter 7 bankruptcy, also known as a straight bankruptcy, you must pass the means test, which compares your income with that of other households in your state and determines if you earn more than enough to file. There are also exceptions to which debts can be discharged, and which property you can keep. Some types of debt are not dischargeable, including child and spousal support obligations and some tax debts.
To file for Chapter 7 bankruptcy, you must complete more than 20 forms that detail the property you own and owe, your income sources, the money you have in savings and retirement accounts, the cash value of your insurance policies, current monthly expenses, and property you are claiming as exempt. You must also submit copies of recent tax returns. After your petition is filed, a trustee is assigned to your case. This person will review the forms and submit them to the court. The trustee will also hold a meeting of creditors, which you must attend. Creditors can ask questions at this meeting, although they rarely do.
The bankruptcy process takes four to six months to complete. During this time, the trustee liquidates your nonexempt property to pay your creditors. You can usually keep certain items, such as a motor vehicle up to a dollar limit, clothing and appliances up to a dollar limit, tools of the trade, and a limited amount of equity in your home. You can also keep most of your wages and public benefits, such as unemployment compensation and Social Security.
After you receive your bankruptcy discharge, the court sends a notice to your creditors that you have been cleared of your debt. You must wait seven to 10 years before you can file for Chapter 7 again. After that, you can obtain credit, but lenders may be more cautious about approving new loans to people who have filed for bankruptcy in the past.
Before you decide to file for bankruptcy, try to find other ways of dealing with your financial problems. You could cut your spending, increase your income, negotiate lower interest rates with creditors or sell assets you don’t need. You can also speak with a bankruptcy lawyer to discuss alternatives to bankruptcy. A good lawyer can help you find other options that may provide you with a better long-term solution than filing for bankruptcy.
