Filing for bankruptcy can be a very stressful and emotionally draining experience for individuals and families. Although bankruptcy can provide relief from the pressures and stresses created by overwhelming debt, many people see it as an admission of failure. Streamlining and making filing for bankruptcy as smooth as possible can help prevent additional angst and turmoil.
More than 1 million Americans filed for bankruptcy last year, and the number of people filing personal bankruptcies has trended upward in recent years because of the poor economy and other factors, such as growing health care costs.
When filing or bankruptcy, it’s important to file for the type of bankruptcy that’s most appropriate to your individual circumstances and to make sure all paperwork is filed correctly. A botched bankruptcy could see you pay more than you ought to in debt repayments and attorneys’ fees or lose property that, had the bankruptcy been filed correctly, you would have been able to retain.
When should I file for bankruptcy?
Bankruptcy has some long-lasting consequences. It stays on your credit report for 10 years, and some employers ask whether you’ve filed bankruptcy on employment applications.
Before filing bankruptcy you should consider other alternatives such as debt consolidation or selling assets to pay off your debts. However, if you’re beset with outrageous medical bills, or if your debts will prevent you from retiring or being able to fund your children’s college education, you may want to consider bankruptcy as a way to get a fresh start.
Current bankruptcy law requires debtors to seek credit counseling at their own expense before filing for bankruptcy. While this adds to the cost of filing for bankruptcy, a credit counselor can help you determine whether bankruptcy is the solution to your problems and what type of bankruptcy you should file.
Hire an attorney
Thinking about representing yourself in bankruptcy court? Don’t do it. Unless you’re a financial or legal genius, you shouldn’t be representing yourself in bankruptcy court. Think you’re a genius? Then why are you bankrupt?
The fact of the matter is that bankruptcy forms are incredibly complicated, and they’re specifically designed that way by the federal government to discourage bankruptcy filings. Screwing up these forms could cost you in additional debt payments, or losing exemptions that could result in you having to sell property to settle your debts that you otherwise could have kept. Save yourself a lot of grief and expense. Bite the bullet and hire a competent bankruptcy attorney.
Paying for it
Silly as it sounds, it costs money to go broke. Court fees for Chapter 7 and Chapter 13 bankruptcies, the most common personal bankruptcies, are $200 and $185. The average attorney’s fee for bankruptcy work is $1,700, but this can vary by state and municipality. In some areas, if your case is desperate enough, you may be able to obtain help from a legal aid or other social services organization.
You may want to cease payment on some debts as you prepare to go into bankruptcy in order to raise the necessary cash. Be warned, however. Don’t run up any new debts, as you may be sanctioned by the court for taking on debts you had no intention of repaying.
Choosing your chapter
Once you’ve met with the credit counselor and hired an attorney, you’ll need to chose which chapter of the bankruptcy code you’ll be filing under. Most personal bankruptcies are filed under Chapter 7 or Chapter 13. Under a Chapter 7 bankruptcy, your personal assets not covered by exemptions are sold off to pay your debts. Whatever’s not paid off is written off by your creditors, except for certain debts such as child support and student loans. Under a Chapter 13 bankruptcy, your debt is reorganized and you’re placed in a three to five year repayment plan. The benefit of a Chapter 13 bankruptcy is that it often reduces the amount you have to pay back to your creditors. Once the three to five years is up, your remaining debt, save for things like child support and student loans, is discharged.
Under a recently passed federal law, there’s a means test to determine who can file Chapter 7 bankruptcy. Folks who have too much income for a Chapter 7 bankruptcy are instead allowed to file a Chapter 13 bankruptcy.
For farmers and fishermen, Chapter 12 bankruptcies are also available. These bankruptcies resemble Chapter 13 bankruptcies, but are specifically tailored to the needs of farmers and fishermen.
Going to court
Once your attorney files your petition for bankruptcy, the court will appoint a trustee and you’ll be called in for what’s known as a first meeting of creditors. In all actuality, this will be a 10 minute meeting between yourself and the trustee in which you’ll talk about your debts and assets and swear to the validity of paperwork describing your debts and assets that has been submitted to the court. The trustee will take your information and determine what assets, if any, can be sold to repay creditors, or, in a Chapter 13 case, work out how much you should pay back your creditors. After the meeting, your creditors will have 60 days to challenge the discharge of your debts or your debt repayment plan. After that, your debts will either be discharged in a Chapter 7 case, or you’ll begin your repayment under a Chapter 13 bankruptcy.