If you have large debts that you can’t pay, are behind in your mortgage and facing foreclosure or are being harassed by bill collectors, declaring bankruptcy may seem like a way to get a fresh start. But before you file, make sure you’ve met all the legal requirements for filing for bankruptcy. If you fail to do so, your case can be dismissed and you may lose any assets you have.
The first requirement is to complete credit counseling. Federal law requires this to help you build better financial habits so that you can avoid future bankruptcy proceedings. You can get this through a variety of outlets, including online or in person. Whether you choose to meet with an individual or go through an online program, you need proof of completion before filing.
You must also compile financial documentation that lists your debts, assets, income and expenses. This gives you and anyone helping with your bankruptcy a clear picture of your financial situation. For example, if you are court-ordered to pay alimony or child support, you need documentation of those payments, along with information about any other expenses that impact your ability to pay your debts.
Depending on what chapter of bankruptcy you file, you may need to fill out various forms. For example, a Chapter 7 bankruptcy requires that you submit income documentation, such as pay stubs, bank statements and tax returns from the past 180 days. In addition, you must provide a copy of your driver’s license and Social Security number to the trustee. If you are represented by an attorney, you must provide a statement of compensation and copies of your paycheck stubs from the 60 days preceding your bankruptcy. You must also submit a copy of the most recently filed federal tax return.
The type of bankruptcy you file determines what property you can keep and what your repayment plan will be. For instance, a Chapter 7 bankruptcy liquidates your nonexempt assets to pay creditors. However, if you are able to produce enough income to pay back a reasonable portion of your debts, you can file under Chapter 13 of the Bankruptcy Code, which allows you to keep your property and repay some or all of your debts over three to five years.
In all cases, if you want to qualify for a mortgage after your bankruptcy, you must wait at least four years from the date of your discharge. You may also need to wait for car insurance because those rates are based on your credit report.
Likewise, you must continue to pay any secured loans or leases that come due before the end of your bankruptcy proceeding (for example, your home mortgage and vehicle payment) unless you have a valid exemption to allow you to skip the payments or pay them through the bankruptcy process. Otherwise, the trustee will take over those items and sell them to cover your debts. If you don’t follow the rules of the bankruptcy process, the court could dismiss your case or even prosecute you for fraud.