11 Steps to Take When Bankruptcy Is Your Only Option
Filing for bankruptcy can provide a welcome solution for anyone who simply cannot keep up with their debts and credit obligations. But it's never something that should be taken lightly. Bankruptcy can remain on your credit for up to 10 years, making it nearly impossible to apply for credit in the meantime. Having a bankruptcy on your record can even affect your ability to get a job.
That's why we've covered the main steps you'll need to take if you're filing for bankruptcy. Consider them before deciding whether bankruptcy is right for your situation.
1. Get Serious About What Bankruptcy Means
Before making the decision to file for bankruptcy, make sure you've explored all other options, like debt consolidation or credit counseling. You will also need to determine if Chapter 7 bankruptcy is right for you (as opposed to Chapter 11, 12, 13, or 15). Most individuals choose Chapter 7 bankruptcy, which will release the debtor from some, or all, financial obligations.
According to LegalZoom, the entire bankruptcy process should take four to six months to complete. However, keep in mind that a discharge is not guaranteed. Even after filing your petition in bankruptcy court and going through all the motions, your creditors can still object to your discharge. You might also not receive a discharge if you don't fill out all the necessary documents correctly and on time, if you fail to attend any required credit counseling courses, or if you did not fill out the paperwork truthfully.
2. Complete the Means Test
It is important that you complete what's known as the means test. This standard test will compare your income to your debts to help you determine if you should file for Chapter 7 or Chapter 13 bankruptcy.
3. Hire an Attorney, if Necessary
A bankruptcy lawyer can be invaluable when you're filing your case. A lawyer can explain your options, answer your questions, make informed recommendations, and even fill out the forms for you and make sure they are filed before the court deadlines. At the very least, call a bankruptcy attorney for a free consultation. You will definitely have questions throughout the process and probably need some form of advice.
But you don't necessarily need a bankruptcy attorney for the entire process, and many people are able to successfully file for bankruptcy on their own. Filing on your own can save money on attorney's fees, but first consider whether it's the best course of action in your case.
Filing for bankruptcy on your own can be very difficult and confusing. There are a number of complicated legal concepts and terms, as well as regular court requirements that you need to keep up with. A bankruptcy attorney can help you get through the process in far less time and stress. Use a free consultation to determine whether you'd benefit from hiring a bankruptcy attorney.
4. Pay the Fees
While bankruptcy can help to eliminate your debt, it can be an expensive process in and of itself. For starters, you'll be responsible for filing the application fees. On average, debtors who file for bankruptcy on their own can expect to spend approximately $300–$500 filing for bankruptcy. On the other hand, debtors who file for bankruptcy with an attorney usually spend around $2,000 total. Once you schedule your free initial consultation, you can get more information on the fees and when you would be responsible for paying them.
5. Assemble Your Information
Regardless of whether or not you hire an attorney, you'll need to have all of your financial information gathered and organized. You need to analyze your income, expenses, assets, and debts, and determine your property exemptions. You will also need to have basic information like your average monthly income during the previous six months.
In order to have a debt discharged, it needs to be listed on your bankruptcy forms. If it is not listed, you may still be responsible for it after the bankruptcy. This is why it's so important to carefully assemble your financial information before you ever file paperwork or attend any credit counseling programs.
6. Determine Which Debts Are Excusable
Bankruptcy can wipe the slate clean when there is simply no way you can pay off your obligations. However, there are still some debts you may be responsible for, such as student loans, child support, and tax debt. It is also important to keep in mind that anyone who cosigned or guaranteed a loan for you will still be obligated to pay.
7. Attend a Credit Counseling Program
Within six months before filing your petition, you will need to attend a credit counseling program at a court-approved agency. The counseling can usually be completed online or over the phone and will only take about an hour or so. There is a fee for credit counseling, but it is usually under $100. When you file your petition, you will need to provide proof that you have completed this program.
8. File the Forms
There are a number of bankruptcy forms that need to be correctly filled out and filed on time. Once the packet of forms (also known as a bankruptcy petition) has been filled out, the debtor will normally receive a discharge of their debts approximately a few months later (if your petition is accepted).
9. Automatic Stay
Once you have filed all the necessary paperwork, an automatic stay will go into effect. This prohibits almost all creditors from continuing collection actions against you.
10. Attend the Meeting
Chapter 7 bankruptcies rarely go to court. However, you will need to attend a mandatory meeting (also known as a 341 meeting) with the creditors and court-appointed trustee. During this meeting, your trustee will ask questions pertaining to your bankruptcy petition and finances. Your creditors may also choose to attend the meeting to question you or the trustee, but this usually doesn't happen. If all goes well, you can expect a bankruptcy discharge within approximately 60 days after the meeting.
11. Post-Bankruptcy Obligations
Once you have successfully filed for bankruptcy, you will need to attend post-bankruptcy credit counseling. This is to help you more successfully manage your debts going forward so that you are not in the same position again. They can also help you rebuild a healthy credit history. Once you have completed the debtor's education course, you will get your discharge. At this time, the automatic stay will end and your case will be closed.
Do you have any other advice for debtors considering filing for bankruptcy? Please share your thoughts in the comments!
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