What Are the Procedures for Bankruptcy?
Before deciding to file for bankruptcy, it is best to have a firm grasp on the process and its implications. By understanding what bankruptcy entails, you can better decide whether it is the best option for you or whether there are still other alternatives available that do not involve the long-lasting aftermath of bankruptcy.
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Your Decisions
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The first step in the bankruptcy procedure is seeking the pre-bankruptcy mandatory credit counseling through a U.S. court-approved agency. After the credit counseling, you may decide that bankruptcy is not your best option. Or, you may choose to proceed with filing, in which case you must decide which type of bankruptcy suits your protection needs. For individuals, you may file a Chapter 7 (total bankruptcy), Chapter 12 (for family farmers or fishermen) or Chapter 13 (wage-earner's bankruptcy). Upon making your decision, download the necessary forms from your U.S. Courts regional bankruptcy website or pick them up in person at the nearest bankruptcy court.
Filing With the Court
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While some bankruptcy courts allow you to file electronically online, many still require that you visit your regional bankruptcy court to file your bankruptcy petition. In addition to all the required paperwork, you will have to pay the filing fee determined by the chapter filed which is typically listed on your regional bankruptcy court website. You must then wait to hear about the status of your filing, which can take approximately 21 to 40 days.
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Approvals, Re-petitioning and Conversion
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If your bankruptcy filing is approved, you will meet with a court-appointed trustee who will oversee most of the process in court on your behalf. The only time a bankruptcy filer will most likely have to appear in person is for the meeting of creditors along with the trustee which is typically held at the U.S. trustee's office instead of the courthouse. If your filing is denied, you may either appeal or petition to convert to another bankruptcy chapter.
Chapter 7 Recovery
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For Chapter 7 bankruptcy, your eligible assets will be liquidated by the trustee to pay your debts while other debts may be discharged entirely. Your credit score will take a big hit, meaning that getting any line of credit including a mortgage, car loan or credit card will be difficult for awhile. Remember that Chapter 7 bankruptcy remains on your credit report for 10 years. To hasten your credit recovery, pay your bills on time and apply for a secure credit card. Slowly rebuild your credit over the next few years by following a budget and living within your means as taught in your mandatory credit counseling.
Chapters 12 and 13 Recovery
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For Chapter 12 and Chapter 13 bankruptcies, you will continue to pay the trustee the determined amount monthly to pay off your eligible debts. Your debt repayment plan will continue for three or five years as determined after your meeting with the creditors. While you are repaying your creditors, implement the skills for budgeting and planning for future expenses that you learned in credit counseling. Wisely use the credit you still have and spend less than you make. This will ensure a healthier financial position at the end of your debt repayment plan and help you remain debt-free once your Chapter 12 or Chapter 13 bankruptcy falls off your credit report after seven years.
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