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Bankruptcy: Step by Step

Step by Step Guide on How To Declare Bankruptcy

bankruptcy guide

If you are overwhelmed by your financial situation, there is no doubt you are looking for a solution that allows you to move on with a fresh start. Chapter 7 or Chapter 13 bankruptcy is a necessary first step to protect yourself and gain a better financial future. There are several key steps to filing for bankruptcy. It might be a long process, but it does not have to be one that is frustrating.


First Things First

One of the most important things to do at the outset of your case ensures that you conducted the appropriate research. This helps you determine the right type of filing for you. Be sure to fill out the paperwork appropriately. This can help avoid unnecessary delays in your case. When debtor files for bankruptcy, the case is reviewed by a trustee, a government employee.

The Trustees’ Role

The trustee has to watch the hearing and handling any issues that emerge throughout the process. The majority of petitioners will only deal directly with their trustee and will not have to actually appear in court unless they need to approve their debt payment plan in a Chapter 13 bankruptcy. The majority of these cases in the United States are handled primarily through paperwork. It resembles an administrative process rather than a legal case.

Step 1: Determine the Right Type of Bankruptcy

A Chapter 7 bankruptcy will typically wipe out your debts. But, it can require the liquidation of some of your assets to cover debts. You have to pass a means test, which excludes those individuals with many assets or income from filing for Chapter 7. It will usually take 3 to up to 6 months in order to complete a Chapter 7 bankruptcy. A Chapter 13 bankruptcy, on the other hand, is for those individuals who do not pass the means test.

Certain debts are restructured inside Chapter 13 bankruptcy and a payment plan is generated. The petitioner, once the process is complete, has to make regular payments to settle debts.

Debtors are not required to liquidate property in a Chapter 13 bankruptcy since their present income pays down their debts. This will usually conclude after a maximum of a 5-year payment plan. All debts are considered paid off after the payment plan is complete.

Step 2: Conduct a Financial Inventory

You need to assemble all of your various financial information to determine which type of bankruptcy is appropriate for you. This includes:

  •       Income
  •       Debts
  •       Monthly household living expenses
  •       Property and assets

Step 3: Credit Counseling

In the majority of situations, you will need to complete credit counseling at least 6 months prior to filing your petition. This will often take a short period of time and is relatively inexpensive. In some situations, your petition can be denied if you forgo credit counseling. This is why it is important to take this step. Make sure your financial inventory is ready prior, to attending this meeting.

Step 4: Attend Your Creditor’s Meeting

After your petition is approved by the court, your creditors receive a notice that you included their specific debt in your filing paperwork. This also notifies them of any automatic stays on your account. Up to 6 weeks later the trustee schedules a meeting for the creditors. The trustee ensures you understand the consequences of moving forward with bankruptcy and give you more information about next steps.

Step 5: Post-Bankruptcy Credit Counseling

Once you are close to making your last payment on your Chapter 13 or once you have had your creditors’ meeting for Chapter 7, there is a good chance that you will need to undergo post-bankruptcy credit counseling court. This usually needs to happen within 45 days of the creditors’ meeting for Chapter 7 bankruptcies and for Chapter 13 bankruptcies it needs to happen on a date that you file a motion to discharge the bankruptcy if you don’t finish the payment plan, or before the day you make your last payment.