Declaring personal bankruptcy may seem like a drastic step to stop debt collectors and the last thing you want to do. However, there are times when it can be your best path out of debt. For example, filing for bankruptcy can be a good idea if you are:
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You should always decide whether or not to declare personal bankruptcy with the help of an experienced consumer bankruptcy attorney. The attorney will evaluate your finances to help you determine if there is a way you can avoid filing and will also advise you about whether the federally-required means test qualifies you to file a Chapter 7 debt liquidation bankruptcy or if you must file a Chapter 13 reorganization of debt bankruptcy instead.
The bankruptcy attorney will also explain the filing for bankruptcy process, including telling you about all of the financial information he will need from you to fill out the various bankruptcy forms that must be filed with the court to begin your bankruptcy. The attorney will also help you keep as many of your assets as possible. In bankruptcy, certain kinds of assets are exempt, which means that they cannot be taken from you.
If you file Chapter 13 bankruptcy, you will have between 3 and 5 years to pay off all or some of your debts according to the terms of the debt reorganization plan your attorney will prepare for you. The bankruptcy court must approve the plan and once it does, the court will supervise your plan until you complete it.
Once you've completed your plan, most - but not necessarily all - of your remaining debts will be discharged, or forgiven. However, certain kinds of debts will survive your bankruptcy and so you will still owe them once you are out of bankruptcy. These debts, which are described as being nondischargeable may include your mortgage, your alimony or child support obligation, most types of taxes, most government funded or guaranteed educational loans, debts you incurred because of fraud, embezzlement or property theft or because you provided false information to the court, debts you owe because you willfully and maliciously injured someone, as well as any criminal fines or restitution you may owe.
If you file Chapter 7 bankruptcy, most of your debts will be discharged, or wiped out, and your bankruptcy will probably be over fairly quickly. However the same kinds of debts that cannot be discharged in Chapter 13 are also non-dischargeable in Chapter 7 and so you will still owe them.
An important drawback to filing Chapter 7 is that in exchange for having most if not all of your debts erased, you may lose some of your assets – your nonexempt assets. The trustee in your bankruptcy will sell the assets and use the sale proceeds to pay your debts. However, most people who file for Chapter 7, don’t lose anything because they don’t own any non-exempt assets. When you have no non-exempt assets and you file bankruptcy, your case is referred to as a no-asset case.
If you have nonexempt assets that you don’t want to lose, you should file a Chapter 13 instead of a 7. Again, this is something the bankruptcy attorney can help you figure out.
Set up a free initial evaluation with a bankruptcy attorney to find out what kind of information the bankruptcy attorney will need to determine whether you are a good candidate for bankruptcy. Among other things the attorney will need to know about all of your debts and all of your assets as well as your monthly income and expenses.
To talk with a bankruptcy attorney, call the Debt Relief Hotline at 888-495-0133
If filing for bankruptcy is a good option for you, you must provide the attorney with all of this information before he can begin your bankruptcy. He will use it to complete all of the required bankruptcy forms. Also the attorney will use some of the information to apply a "means test" to your finances. The means test is a federally required formula that determines whether filing a Chapter 7 bankruptcy (a liquidation bankruptcy) is an option for you, or whether you must file a Chapter 13 reorganization bankruptcy instead.
When you talk with the attorney, he will also explain the difference between an exempt asset (one that you can keep in bankruptcy) and a nonexempt asset (one that you may lose) and he will help you determine which assets you will exempt in your bankruptcy.
Your goal in declaring personal bankruptcy will be to hold on to as many of your assets as possible and to get rid of as must debt as possible at the same time.
If you decide that you want to file for bankruptcy, the federal bankruptcy law requires that you complete a counseling session with a federally approved credit counseling agency during the 180 days prior to the date that your bankruptcy will begin. The agency will look at your finances to help you figure out if you can avoid bankruptcy by repaying your debts through a credit counseling program.
(There are some exceptions to the credit counseling requirement. For example, you may be able to get it waived if you need to file bankruptcy right away to avoid the loss of your home in a foreclosure or the repossession of your car.)
After you have completed your counseling session, you will receive a Certificate of Compliance, which you must provide to your attorney.
To begin your bankruptcy, the attorney will fill out your bankruptcy petition as well as numerous other required legal forms, including a Schedule of Debts and a Schedule of Assets. These forms must be completed file Chapter 7 bankruptcy or Chapter 13. You will be expected to provide your attorney with all of the information he needs to fill out your Chapter 7 bankruptcy forms or your Chapter 13 bankruptcy forms.
Your attorney will file all of the completed forms with the federal bankruptcy court in your area and pay a filing fee. Once that happens, your bankruptcy will officially begin.
If you have little or no money, a "do it yourself bankruptcy" or filing bankruptcy online may seem like a good way to save money. Watch out! If you want your bankruptcy to go well, you really need the help of an experienced consumer bankruptcy attorney. Here's why:
Your bankruptcy will begin as soon as your attorney has filed your bankruptcy petition and other legal paperwork with the court. Once that happens, the court will issue an automatic stay requiring creditors and debt collectors to stop trying to collect from you.
However, there are exceptions to the automatic stay. For example, efforts to collect any past due child support or spousal support you may owe can continue. The automatic stay will remain in place while you are in bankruptcy.
Once you have filed, the court will assign a trustee to your case. The trustee will probably be an attorney who is in private practice, or an accountant. Although some of the trustee’s responsibilities will depend on whether you file Chapter 7 or Chapter 13 bankruptcy, the trustee will do the following regardless of which type of bankruptcy you file
It's also possible that the trustee will ask the court to dismiss your bankruptcy if he or she believes that you’ve abused the process in some way. Should your bankruptcy end, you will no longer be protected by the automatic stay and so you will be at the mercy of your creditors and debt collectors again.
If you file for Chapter 7 bankruptcy, the trustee will take control of all or most of your nonexempt assets -- if there are any -- sell them, and use what they get from the sale to pay your creditors. Once that has happened, the court will discharge any debts that may remain except for those that the bankruptcy law says cannot be erased, or any debts that you've formally agreed to continue paying according to the terms of your original contracts with the creditors to whom you owe the money. (When you agree to continue paying a debt, you are described as having reaffirmed the debt.) After the discharge, which usually happens about 120 days after your Chapter 7 bankruptcy began -- your bankruptcy will be over.
Read What Can They Take From Me if I File for Bankruptcy? to learn more about exempt and non-exempt assets.
After you file a Chapter 13 bankruptcy, you and your attorney will prepare a reorganization plan. The plan will detail exactly how you will pay off your unsecured debts (credit card debt and medical debt, for example) during the 3 to 5 years that you will be in bankruptcy. Most likely you will pay less than the full amounts that you owe on those debts.
Although you can reduce the amounts that you must pay on most unsecured debts, you cannot do the same thing when it comes to your secured debts – your mortgage or car loan, for example. If you want to hold on to those assets, you must pay the full amounts that you owe on them.
However, while you are in Chapter 13, you can catch up on any missed mortgage payments through your plan, although you will have to stay current on your mortgage payments at the same time. Also, if you are behind on your car loan, you can put the entire loan balance in your plan and you will get title to the vehicle once you’ve completed your plan.
Your creditors will have an opportunity to review your plan and object to aspects of it and you may be required to revise the plan before the court will approve it. Once that happens, you’ll be responsible for living up to all of the plan’s requirements while you are in bankruptcy, and you'll be protected by the automatic stay as long as you do.
If you believe that you are going to have problems living up to the terms of your plan once you’ve begun paying on it, let your attorney know right away. You may be able to modify the plan