The Process of Filing For Bankruptcy

When Should You File For Bankruptcy?

Generally speaking, people begin thinking about filing for bankruptcy when they have an unmanageable load of debt that they can no longer make the minimum monthly payment on. In some cases this may mean that they can still make some kind of payment on their debt, they just can’t meet the required minimum each month. For other people, this means that their income is totally taken up by their living expenses, and they are fully unable to make any payment. Regardless of where you are at, bankruptcy is an intricate option that requires some thought.

If you are reading this article, it is likely that you are at a point where you are trying to figure out if you should file for bankruptcy, and if you do, what you should expect. This article will outline the process for filing for bankruptcy, and what happens once you do. We will also look over a few other alternatives to consider before filing for bankruptcy.

The First Step

Though there are a few types of bankruptcies that you can file for, the process is generally the same. One of the first things you will want to do when considering filing for bankruptcy is to gather all of your financial information. There are two main types of bankruptcy that individuals tend to file: Chapter 7 and Chapter 13. Regardless of what type of bankruptcy you choose to file, every petition is going to need an exhaustive outline of your financial information.

Take some time to gather everything you need to outline your financial situation. This includes things like:

  • Debts you owe
  • Income you make 
  • Assets you own
  • Monthly living expenses
  • Other streams of income or expenditures
  • Tax filing reports that go back at least 4 years
  • Exemptions 

When you have all of this together, take some time to look over it and see if there is anything missing. Did you unexpectedly inherit anything in recent years? Is there a personal loan or expense that isn’t accounted for? Make sure that your documents reflect your full financial history. This will make sure that you end up financially stable on the other side of your bankruptcy process.

Meet With a Credit Counselor

Again, regardless of which Chapter you decide to file your bankruptcy under, one of the biggest requirements before filing is meeting with a Credit Counselor. The job of a Credit Counselor is an important one. They will look over all of your bills and debts and help you see if bankruptcy is a path you should consider, or if something else may be more appropriate, like a Debt Management Plan. Whatever you decide to do, you will have to meet with a Credit Counselor before filing for bankruptcy. They will also help to educate you on your options, coach you through your next steps, and help you access the resources you need to get started. This step is something that you have to do no more than 180 days before filing for bankruptcy.

Find a Bankruptcy Attorney

If you have decided that you will be filing for bankruptcy, the next best step is to find a bankruptcy attorney to represent you. While it is not a requirement for you to have legal counsel, it is absolutely recommended that you do. Both judges and court employees are not allowed to give you legal advice, and if you are not comprehensively aware of the federal and state bankruptcy laws, you are putting yourself at risk. This can end in many ways, either having your case dismissed because you didn’t keep up with the case details and paperwork, or even having everything you own liquidated to pay off debts by the bank trustee. Make sure that you protect yourself by working with a bankruptcy attorney before you file for bankruptcy.

File the Petition

Assuming you are an individual who is deciding for themselves to file for bankruptcy, you will be filing a Voluntary Petition for Individuals Filing for Bankruptcy. If you are not, there are three other options that are for businesses, and for involuntary bankruptcy.

When filling out the petition, you will have to give information such as your name, address, pending cases you may have, estimate of debt, type of debt, and assets you possess. You or your legal counsel will have to sign the petition under penalty of perjury, which holds the same authority as if you were lying on the stand in court. Everything you disclose must be honest and represent the whole picture. The penalty for perjury can be a fine of up to $250,000, 20 years in prison, or both.

When filing the petition, you will also have to submit all of those financial documents we gathered a couple steps ago. This will allow the court to fully review your financial situation and determine whether you are eligible to continue with your bankruptcy proceedings. It's important to note that you will have to pay to file for bankruptcy. The costs vary depending on which type of bankruptcy you are filing. 

Next Steps

After filing for bankruptcy, the next steps will change based on what type of bankruptcy you filed for. Either way, you will have a bankruptcy trustee appointed who will help walk you through what happens next. If you filed for Chapter 13 bankruptcy, a meeting will be set up with your creditors to determine a revised payment plan. This allows you to pay out your debt over a longer period of time. If you filed for Chapter 7 bankruptcy, your bankruptcy trustee will begin liquidating your nonexempt assets. They will use the money made to pay off your debts. 

Having legal counsel with you will ensure you are aware of everything going on and protected from all unnecessary penalties. There will be some downsides to filing for bankruptcy. Both your credit score and credit report will suffer. Your score will drop significantly, and your report will show that you filed for bankruptcy 7-10 years afterwards. This can make it difficult to get additional lines of credit moving forward.

Alternatives to Filing for Bankruptcy

While it may seem that bankruptcy is your only option, there are some things you can try to do before moving to file. Here are three common alternatives to filing for bankruptcy:

  • Debt Settlement: Consider trying to reach out to your creditors and see if they would settle for a lower repayment to satisfy your debt. Typically, you have to have the amount you are offering in cash to pay up front if they agree, but it is worth a shot if you have the funds.
  • Debt Consolidation: If your biggest struggle is keeping up with the sheer number of payments you have, consider consolidating your debt. This allows you to have one payment that covers all that you owe instead of many smaller payments that you have to keep up with. Most businesses that offer loan consolidations do charge for taking on the debt and extending the payout. Keep this in mind before deciding to consolidate.
  • Debt Management Plan: Get in touch with a credit counseling agency and see if they can help you reorganize and better manage your various debt payments. If you can stay on top of your payments with the help of a little organization, this option could save you the trouble of bankruptcy. 

Whatever you decide to do, taking a step towards financial stability is always one worth taking. Be sure to look through all of your options, and consider which would work best for your situation. 

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