Last Updated on January 11, 2023 by James Gentile
You have put every penny you can spare toward your bills, yet nothing seems to pull you out of your debt dilemma. At this point, it may be worth considering one final option: filing for personal bankruptcy. As traumatic as this may seem, it enables many debtors to turn the corner and set themselves on a new (if lengthy) course toward a healthier financial future. The complexities of filing for bankruptcy can add an extra layer of intimidation to the process, but you should not let that deter you from doing what you need to do. To help you put your fears aside to focus on your debt-relief objectives, here’s a basic overview of what you can expect from the bankruptcy filing process.
Since the slightest misunderstanding or clerical error can jeopardize your bankruptcy filing, your first step should always be the selection of a skilled, experienced bankruptcy attorney. This expert can provide all the step-by-step guidance you need to make the right decisions and follow the appropriate bankruptcy filing procedures.
One choice you will need to make concerns which type of bankruptcy you should file for. Chapter 7 bankruptcy (personal liquidation) can free you from your debt burden altogether, but only if you pass a means test that verifies your inability to repay the debt. Otherwise, you will need to file for Chapter 13 bankruptcy, which requires you to repay up to half of your debt burden but allows you to make a monthly payment over a multi-year plan.
Your bankruptcy attorney can advise you on which assets you can keep during bankruptcy according to your state’s laws and create a comprehensive list of all your current assets and properties. You should be permitted to keep personal possessions, but full disclosure is a must nonetheless. You must also list all income (except for Social Security income) and all your current monthly expenses, including average numbers for variable expenses such as utility bills. Of course, you will also need a list of all your outstanding debts and the associated creditors.
Undergoing Credit Counseling (Part 1)
At least six months before you file for bankruptcy, you need to undergo pre-bankruptcy credit counseling. Ask your attorney to point you toward a properly-approved credit counseling agency. The counseling occupies a single session in which the counselor helps you analyze your situation and determine how you should proceed. If the agency helps you put together a repayment plan (under Chapter 13), you will start making those payments no more than 30 days after filing for bankruptcy. At this point, you can submit the bankruptcy petition.
Attending the Necessary Meetings
A few weeks after your petition has been accepted, you will have to attend a creditors’ meeting, even if the creditors themselves decide not to show up. You will answer any questions about your bankruptcy to reassure all parties that you are not just trying to eliminate repayable debts. If a creditor objects to bankruptcy, you will have to resolve their complaint before the bankruptcy can go forward. Once that is settled, the judge will either liquidate your assets (in Chapter 7) or hold a final confirmation hearing to approve your repayment plan (in Chapter 13).
Undergoing Credit Counseling (Part 2)
After all these processes have been completed, you are in the clear except for one final step: the second round of credit counseling. This post-bankruptcy counseling will focus on topics such as how to rebuild your financial stability and credit status in the years to come. You must complete this stage within 45 days of your creditors’ meeting. Otherwise, the entire bankruptcy process will stall out, and you will have achieved nothing.
Bankruptcy is hard, but it does not have to be terrifying. Get the legal guidance you need, follow all the steps, and you will be in an excellent position to make that fresh start.