Steps in Filing Bankruptcy
- Taking a few smart steps before you file for bankruptcy can be just as important as the actions you take during the process. First, carefully assess your financial situation. Be sure that filing bankruptcy is the best way to cure your financial problems.
Consider the two bankruptcy options, Chapter 7 and 13. Chapter 13, often called the "wage earner's plan", allows you to pay reduced amounts to your creditors, while keeping all of your assets (homes, cars, etc.). Chapter 7 permits you to eliminate most or all of your debts, but you may also be required to surrender most of your major assets, except for your home and some personal possessions.
Although bankruptcy is covered by federal law, individual states also have different regulations. Learn about the local permissions and restrictions in your state. The recent bankruptcy law modifications also mandate that you complete a credit counseling course within six months of filing for bankruptcy protection. - After getting your creditor information together, you and your attorney prepare the bankruptcy documents. Based on your local and federal regulations, you will decide what assets you can protect using the "exemptions" allowed in your jurisdiction. You then file the required documents with the bankruptcy court. The bankruptcy court will advise your creditors that you have filed for protection under Chapter 7 or 13 and all collection activity must cease immediately.
- Between 20 and 40 days from your filing date, there will be a meeting of your creditors, usually called the "341 meeting." You must attend this meeting, but it is not as stressful as it sounds. This is a requirement of a bankruptcy filing, but it will typically last only a few minutes. Only in rare and complex cases will your creditors extend this meeting beyond making the required appearance. In many cases, your creditors will skip this meeting, even though you must attend.
- Non-exempt assets are those that you cannot protect per your state regulations. Often your non-exempt assets involve your autos and other personal property valued at more than the maximum personal property exemption amount allowed by your state statutes. This liquidation of assets typically takes place around 30 to 60 days after your filing date. The proceeds of this sale are targeted to pay your creditors some funds on your outstanding balances.
- In a simple bankruptcy, you should be discharged in around 90 days after the meeting of your creditors. Getting a discharge from the court means that you have satisfied all of the requirements of the bankruptcy regulations and your former debts are now erased (or your payment plan in a Chapter 13 bankruptcy has finished). You have no further business or requirements with bankruptcy court. Your "blackboard is now clean." You are free to start your financial life over--with better future results.