How Do I File For Bankruptcy?
Filing for bankruptcy is a course of action that should not be taken lightly. It should only be considered as a last resort when all other debt relief options have been used. For example, under the Bankruptcy Abuse Prevention and Consumer Protection Act you will need to have received some form of pre-bankruptcy credit counseling within 6 months to qualify for filing a bankruptcy case.
If your debts have reached a level where you can no longer pay them back then filing for bankruptcy may be the best option to take. It is important to point out that filing for bankruptcy is legal process that has to go through the courts. Therefore, any decision you take should be considered carefully before you proceed.
One question you will need to answer is will you be representing yourself or will you hire the services of a bankruptcy lawyer? You can represent yourself however, the bankruptcy process is complicated and unless you are willing to put in the time and effort to learn and understand it you really should consider the help of a legal representative.
Difference Between Chapter 7 and Chapter 13 Bankruptcy
When you have decided to go ahead with declaring bankruptcy you need to consider which type to file. The two types are chapter 7 and chapter 13. Below is a brief description of each:
The most common type that people opt for is Chapter 7 bankruptcy. This is also known as straight or liquidation bankruptcy. This is when a person goes to bankruptcy court and requests that their unsecured debts are discharged by the court.
Unsecured liabilities or debts which take the form of personal loans and outstanding credit card balances are wiped clean. However, if you have any secured liabilities such as a property mortgage or a car loan you are still responsible for these. Bear in mind that under Chapter 7 there is the risk that you could lose these.
Chapter 7 is most suitable for people who are on low income and have no means of paying off their debts.
Under Chapter 13 bankruptcy you will be allowed to keep your home and car however, you must agree to a federal court approved interest free repayment plan. This repayment plan enables you to use your future income to pay off your creditors within a certain time period which is usually between 3 to 5 years. Once you have paid of all your creditors you will then be discharged of your debts.
Chapter 13 is suitable for people who want to pay off their debts but need more time to be able to do it.
If you have decided to use a lawyer they can review your financial situation and advise you on which is the most suitable bankruptcy chapter to file.
Applying For Bankruptcy
With a lawyer representing you they will work on your behalf in helping you fill out and summit the bankruptcy forms to the court. Once the forms are filed your creditors can only communicate to you via your lawyer which means you will no longer receive any letters chasing you for repayment.
The next stage is known as the meeting of the creditors. This meeting is used as an opportunity to go through your petition and to ensure all your debts and assets are listed and that everything is in order. The answers that you give will be recorded therefore make sure that you go with your attorney any possible questions that could be asked during the meeting.
When you file for bankruptcy you will be assigned a trustee which will be an officer from the Department of Justice. In a chapter 7 bankruptcy the role of the trustee is to identify whether your assets are to be exempt or non exempt.
Any assets that are considered non-exempt will be sold and the proceeds used to pay off your creditors. If all your assets are considered exempt then a file of 'non distribution' will be filed to the bankruptcy judge. This means that you are exempt from paying any debts.
Under chapter 7 your creditors have 60 days to file an appeal to challenge the discharge of the debts petitioned in the meeting of the creditors. If there is no challenge you will be discharged within 180 days.
When you are declared bankrupt it will appear on your credit report. A chapter 7 will stay on your file for 10 years whereas a chapter 13 stays on for 7 years.
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