Declaring Bankruptcy, Step by Step
Written by Dongmiao Cui   


Declaring bankruptcy will bring a long term hit to your personal finance, credit profile and legal issues. You want to take great care of the entire declaring process so that you can efficiently relieve yourself from your debts. Here is a step-by-step guide to help you with a little homework before you meet your lawyer and filing bankruptcy.

Step 1: Determine which bankruptcy code to file for
There are six major bankruptcy codes: chapter 7, 9, 11, 12, 13 and 15. As for personal bankruptcy, it is most likely that your case will fall in either chapter 7 or 13, the two most common types of bankruptcy. If you file chapter 7 (known as liquidation), most of, if not all, your debt can be discharged. In contrast, if you file chapter 13 (known as reorganization), you will gradually repay some of your debt with an affordable payment plan that will be worked out by the bankruptcy court, based on your financial condition and your creditors’ requests. The qualification for either bankruptcy is mainly based on your income level. If you earn more than $40,000 a year, it is unlikely that you will be approved for chapter 7 bankruptcy.

You must go through this first step by completing the Means Testing. You will be required to fill the Official Bankruptcy Form 22A if you intend to file chapter 7. If you wish to file chapter 13, you will be required to fill the Official Bankruptcy Form 22C. These forms are also referred to as the Statement of Current Monthly Income and Calculations. They are designed to determine if you have sufficient financial means to pay any portion of your debts.

Step 2 (recommended): Find a lawyer
Though many people have decided to take care of their bankruptcy filing on their own, it is still highly recommended that you hire a lawyer to assist you with the filing proceedings or to represent you. A lawyer should be able to answer all your questions and help you through the Means Test.

Beyond reputation and credibility, the fees for filing is another big concern when it comes to searching for a lawyer. Fees vary significantly depending on your location, the firm and the lawyer him or herself. The average is around $1,700. Since a lawyer cannot become your creditor if you wish to file chapter 7, you will have to pay the attorney’s fee in full before the case is filed. As for chapter 13, the entire attorney’s fee may be paid through your chapter 13 plan upon your lawyer’s approval.

Step 3: Obtain credit counseling
As an individual debtor, you are required to obtain credit counseling from an approved provider within 180 days before filing the case. You will need to file a statement of compliance and a certificate of credit counseling with the provider. Your failure to do so may dismiss your case. Here’s our section on how credit counseling works.

Step 4: Fill out paperwork
Whether you hire a lawyer who can assist you with this step or you have to work on this by yourself, you must fill all the paper works and forms with complete and accurate information. You are required to list all your property and debts in your bankruptcy schedules. If you failed to list a debt, it is possible that the debt will not be discharged. If some one is dishonest in this step (such as hiding information of property, providing inaccurate records or simply lying), the judge may deny the discharge of all debts. Your bankruptcy cases may also be chosen randomly to get audited for accuracy and truthfulness of the information you provide. Bankruptcy fraud is a crime.

Step 5: Pay the filing fees
Total filing fees collected at time of filling is $ 299 for chapter 7 and $ 274 for chapter 13. You will pay these fees to the clerk of the court and they cannot be waived. However in some circumstances you may be allowed to pay these fees in installments. 

Step 6: Attend court hearings
After you file your bankruptcy petition, it is important to attend all court hearings including your 341 meetings of creditors. The 341 meeting is scheduled about 20 to 40 days after you file your bankruptcy. This meeting ensures that you have honestly reported your assets, income and debts in your filing.  Your creditors may also attend this meeting but they do not have to. During the meeting, a trustee will ask you questions involving your bankruptcy filing and demand that you take an oath to tell the truth.

Step 7: It’s the judge’s call
If you have gone through all the previous six steps and have provided credible filing, the judge will likely approve that you declare bankruptcy. Under chapter 7, your legal obligation to pay debts will be removed and you will receive notification of the discharge after 60 days (the deadline of your creditors to file any lawsuits against the discharge of you debt).  Under chapter 13, your repayment plan will start within 30 to 45 days.

Step 8: Annul (exit) your bankruptcy
Annulment of bankruptcy (canceling bankruptcy) is a legal order that nullifies a bankruptcy. After annulment, you will return to pre-bankruptcy status, plus any debt accrued during the bankruptcy period. You may qualify to annul your bankruptcy case if:
  • You believe that the bankruptcy order should have not been made;
     
  • You have paid off or secured all your bankruptcy debts and fees;
     
  • You have entered into an “Individual Voluntary Arrangement” with your creditors.



 
Last Updated on Friday, 24 December 2010 07:05