Bankruptcy – How to File

If you feel as though you are drowning in debt and do not see a light at the end of the tunnel, it may be time to consider filing for bankruptcy protection. Unexpected circumstances such as a medical emergency or the loss of employment can cause you to suddenly find yourself with no apparent way out of the mountain of bills that arrive in your mailbox each month. If you are in that position, bankruptcy may be the solution.

In the United States, the federal courts have jurisdiction over bankruptcy proceedings; however, there are some aspects of bankruptcy that are governed by state law such as available exemptions. Before you begin the bankruptcy process, you should take the time to read through the federal bankruptcy rules. Keep in mind that both the laws and procedures relating to bankruptcy are subject to change from year to year.

Do I Need an Attorney?

There is no rule that requires you to be represented by an attorney when you file bankruptcy; however, because the process can be complicated and requires a debtor to complete and file a number of documents, you may be better off not filing pro se. “Pro se” is the term used to refer to an individual who represents himself or herself in a legal proceeding. Failing to file the proper documents, or making an error on a document, can have serious consequences in a bankruptcy proceeding. Debts that could be discharged or restructured can be left out entirely or your petition for bankruptcy could be dismissed altogether on procedural grounds, causing you additional expense and time.

Bankruptcy Chapters — Which One Do I File?

The various types of bankruptcy protection are referred to as “chapters”. Individuals typically file under one of four chapters—chapter 7, chapter 13, chapter 12, or chapter 11. Knowing which chapter is right for you is crucial as there are significant differences.
A chapter 7 bankruptcy is often referred to as “liquidation” because it liquidates both your debt and your non-exempt assets. In order to qualify to file bankruptcy under chapter 7 you must pass the means test. The means test looks at your income and debts to determine whether you make enough money to make a reasonable effort to pay back your debts. If you do not pass the means test you will need to file under chapter 11, 12, or 13. In a chapter 7 bankruptcy, any non-exempt assets will be sold and the proceeds used to pay creditors. The majority of your remaining debts will be discharged, or forgiven.

A chapter 13 bankruptcy is usually the best choice if you do not pass the means test or if you have non-exempt assets that you do not wish to lose. If you file bankruptcy under chapter 13, you will develop a plan that allows you to repay all, or most, or your debt over the course of three to five years. Any debt remaining at the end of your plan period may be discharged. During your plan repayment period, you will pay out less per month than you are currently paying to help ease the financial strain you were under prior to the bankruptcy filing.

A chapter 12 bankruptcy is very similar to a chapter 13; however, it is specifically designed for debtors who own a family farm or a family fisherman business.

Likewise, chapter 11 is usually used by businesses or corporations, though it can be used by individuals who own a small business. A chapter 11 also operates from a procedural perspective much like a chapter 13.

Exempt Assets

The federal Bankruptcy Code allows a debtor to exempt certain assets from being seized and sold when a debtor files for bankruptcy protection. In addition to the federal exemptions, state laws may provide additional exemptions. Your state of residency at the time you file bankruptcy will decide if additional state exemptions are available. As a general rule, where you have lived, and where your principal assets were located, for the 180 days prior to filing your petition for bankruptcy will decide your state of residency.

Credit Counseling

Federal law requires you to complete credit counseling by an approved credit counseling agency prior to filing your petition in Bankruptcy Court. An additional course that is intended to educate debtors is also required. This class must be completed after you file bankruptcy but before your case terminates.

Schedule of Creditors

As part of the filing process, you must complete a schedule of creditors. This is intended to be a complete list of all your debts, even if they are not dischargeable. This is your only chance to have a debt discharged so the list must be complete. You should take the time to run a credit report with all three major credit reporting agencies to be sure that you do not overlook or forget a debt. Federal law allows you to obtain one free credit report from the three credit reporting agencies per year.

Non-dischargeable Debts

There are some debts that cannot, as a rule, be discharged. There are some differences among the chapters with regard to which debts are non-dischargeable. In addition, some non-dischargeable debts can be discharged in exceptional circumstances. Some of the most common debts that are usually not discharged include alimony, child support, taxes, and federal student loans. Be sure to consult with your attorney or with the Bankruptcy Code if you have specific questions regarding whether a debt is dischargeable in your particular case.

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