Bankruptcy is a court proceeding in which a judge and court trustee examine the assets and liabilities of individuals and businesses who can’t pay their bills and decide whether to discharge those debts so they are no longer legally required to pay them.
You don’t lose all of your property when you file for bankruptcy. In fact, many people can protect most, if not all of what they own. You’ll know what you can keep by reviewing bankruptcy exemption law. Each state has a set of bankruptcy exemptions that a bankruptcy filer can use to protect assets in bankruptcy. Federal law also has a set of federal bankruptcy exemptions. Exemptions protect property in both Chapter 7 and Chapter 13.
Before you ponder about this “should I file chapter 7 or chapter 13 bankruptcy?” here are a few things you need to know when filing for bankruptcy:
Collect your Documents
Before getting started, gather all your financial documents so you understand the current state of your finances. Obtain a copy of your credit report from Experian, TransUnion, or Equifax to learn how much debt you owe. You can obtain your credit report from all three at AnnualCreditReport.com.
An important step to the bankruptcy process is credit counseling. Everyone who files for bankruptcy is required to take a credit counseling course that is approved by the Department of Justice.
Complete & Print Forms
This is the most time-consuming step. The Bankruptcy Forms include 23 separate forms totaling roughly 70 pages. The forms ask you about everything you make, spend, own and owe. Once you have prepared your bankruptcy forms, you will need to print them out for the court. You must print them single-sided. The court won’t accept double-sided pages.
Filing for Chapter 7 bankruptcy normally requires a $335 filing fee, which must be paid to the court in person in exact change.
Head to the clerk’s office to file bankruptcy. You’ll hand over your bankruptcy forms, along with your filing fee of $335 in exact change. Or if you are filing a fee waiver or installment plan, you hand the fee waiver form or fee installment form instead of the cash.
The bankruptcy trustee is an official appointed by the court to oversee your case. Pay attention to mail you receive from the trustee after filing. The trustee will send you a letter asking you to mail them certain financial documents, like tax returns, pay stubs, and bank statements. If you don’t mail the trustee the requested documents, you will not get a discharge of your debts.
Take Course Part 2
Soon after filing your bankruptcy forms, you also need to take your second mandatory bankruptcy course. The second course, called the Debtor Education Course, is similar to the credit counseling course. But it is designed to educate you on making smart financial choices so that you won’t have to seek bankruptcy relief in the future.
Finally, you need to attend your 341 meeting. Usually, the 341 Meeting takes place about a month after filing. The main purpose of the 341 Meeting is to ensure that you are not hiding any expensive assets that should be distributed to creditors. If your papers were done correctly, you should have no trouble answering the questions. Most meetings last only about 5 minutes. Creditors are allowed to attend, although they almost never do.