Ara Betty is a freelance financial writer and speaker about personal financing. She helps people realize their goals on becoming debt free with the use of debt consolidation. She hopes to expand her knowledge more about loans and debt to be able to write a book.
Bankruptcy laws are a series of federal laws enacted to allow people to be relieved from their debts and start over with a clean slate. The laws changed in 2005, making the road to a new beginning more complicated o it is important to know what is bankruptcy, understand completely its benefits and downsides before you decide on whether or not to declare bankruptcy. We’ll look at what you need to know to determine if you should file bankruptcy, the different types of bankruptcy and the procedure for filing.
Filing for Chapter 7 bankruptcy
What is Chapter 7 bankruptcy? Chapter 7 bankruptcy is a liquidation proceeding in which the debtor’s non-exempt assets, if any, are sold by the Chapter 7 trustee and the proceeds distributed to creditors according to the priorities established in the Code.
Consider hiring a bankruptcy attorney
Hiring an attorney is not a requirement, but it is recommended. Filing for bankruptcy is a very complicated process and is rarely successful without the help of an attorney. Free legal services are available for those who cannot afford a bankruptcy lawyer.
1. Filing for bankruptcy without an attorney is called filing pro se. If you do decide to file pro se, the court may allow non-attorney preparers to help you. They can only help you with the paperwork but they can’t answer legal questions or provide any legal advice. They cannot sign anything on your behalf or receive payment for court feessince they don’t represent you.
2. The United States has 90 bankruptcy districts, each with one bankruptcy court. Every state has at least one or more districts.
Find out if you qualify
In order to file for Chapter 7 bankruptcy, your income must be below a certain level. If you have any income left over after paying your monthly expenses, then you must file for Chapter 13 and make arrangements to repay your creditors. Take the “means test” to find out if you qualify for Chapter 7. Complete a series of three forms to take the means test.
1. There may be no need to fill out all the forms. Your answers in the first form determine whether or not you have to fill out the others.
2. Download form 22A-1 from the U.S. Court’s website. The form takes you through the steps of calculating your income and comparing it with the median income in your state for the same household size. If your income is below the state median, then you qualify for Chapter 7. Otherwise, you proceed to form 22A-2.
3. Download form 22A-2 from the U.S. Court’s website. The form takes you through further analysis of your income to determine if you qualify for Chapter 7.
4. Fill out form 22A-1Supp to determine if you are exempt from the means test because most of your debts are from business expenses or you have recent military service.
Fill out the bankruptcy forms
The bankruptcy forms list all of your property, debt, income and expenses for the court. You must complete a large packet of forms. These forms include the bankruptcy petition, a series of schedules and various other forms. You can download the forms from the U.S Court’s website.
All debts need to be listed to be discharged. Failure to list a debt may mean it continues after the bankruptcy.
File the bankruptcy forms
Filing the forms is where your case officially begins. If you are using an attorney, he or she will file the forms for you. If you are representing yourself, then you can take them to the bankruptcy court yourself.
A bankruptcy trustee
The US bankruptcy court will assign you a chapter 7 trustee when you file the forms. The trustee works on behalf of your creditors. This person is responsible for verifying the information in your bankruptcy documents. The trustee also looks at the property you own and determines how much of it you can keep. Each state has rules of its own about what property is exempt from liquidation in a Chapter 7 bankruptcy. The trustee determines this for your case and liquidates any non-exempt property.
A bankruptcy judge presides over the bankruptcy court. The bankruptcy judge rules on matters such as eligibility and discharges. A debtor rarely has to appear in court before the bankruptcy judge. Much of the process is administrative and is carried out by the trustee away from the courthouse.
Get credit counseling
Any individual filing for bankruptcy is required to receive credit counseling and debtor education. Credit counseling is done before filing for bankruptcy. Debtor education happens after bankruptcy. Certificates of completion must be presented to the court before debts can be discharged. Organizations providing these services must by approved the U.S. Trustee Program.
To find a list of approved credit counseling agencies and debtor education courses, consult the Department of Justice.
Attend the 341 meeting
You will have to attend a formal meeting of creditors, which usually takes place at the offices of your trustee. This meeting with creditors is known as the 341 meeting, referring to section 341 of the Bankruptcy code. This requires debtors to face creditors so they can answer questions about their debts and property. The meeting will happen approximately one month after you file. During the meeting, the trustee will ask you questions about your debt and why you are filing for bankruptcy. Arrangements for selling your non-exempt property are made. Also, arrangements are made for property pledged as collateral in secured loans.
Filing for chapter 13
Eligibility for chapter 13 bankruptcy
Businesses cannot file for Chapter 13 even if you are a sole proprietor. You must have a certain amount of disposable income. Your debts cannot be too high. You do not qualify for Chapter 13 bankruptcy if your secured debts exceed $1,149,525. Also you must be current on your income taxes. You must prove that you have filed your federal and state income taxes for the past four tax years.
Fill out the bankruptcy forms
List all of your financial data. Indicate your income, value your property and enter your repayment plan. The forms for Chapter 13 are the same as the forms of Chapter 7. Download the forms from the U.S Court’s website.
Filing for bankruptcy
A trustee will be appointed for your case by the court. However, note that the trustee represents your creditors and not you. This person’s job is to verify your information, look for fraud and administer the bankruptcy procedures. If you feel you need representation, you should hire an attorney. However, you are not required to have one.
Attend two hearings
Within approximately one month of filing for bankruptcy, you will attend a meeting with your creditors. The trustee will arrange this meeting during you will answer questions about your debt and negotiate the terms of your repayment plan. Shortly after that, you will attend a confirmation hearing with a bankruptcy judge who will confirm your repayment plan.
Getting a discharge
What is a discharge
If you are awarded a bankruptcy discharge, you are no longer legally required to repay some kinds of debts. This is a permanent order. Creditors can take no further action against you to collect the debt. They cannot communicate with you about the debt or take any legal action against you.
Unless there are objections to the discharge, it is usually granted automatically. Creditors, debtors and their attorneys all receive copies of the order of discharge.
When to expect the discharge to occur
The amount of time required to get a discharge varies depending on the type of bankruptcy which you filed for. If the petitioner does not complete the required credit counseling and debt education courses, the court can deny a discharge. Exemptions from this requirement can be granted in some cases if the debtor is disabled or on active military duty.
1. In a Chapter 7 case, the discharge may occur within 60 days of the first 341 meeting, which is usually approximately four months from the date the debtor files for bankruptcy. It might take longer if a creditor files a complaint objecting to the discharge or a motion to dismiss the case.
2. In Chapter 13 cases, after the debtor completes all agreed-upon payments,the court grants a discharge. Since these payment plans last between three and five years, it could take several years for the discharge to be granted.
Prepare for non-dischargable debts
The kinds of debts that can be discharged vary depending on the kind of bankruptcy that’s filed. The Congress determines the kinds of debts that cannot be discharged. These decisions are based on public policies. However, debtors must still repay those debts that cannot be discharged.
1. The debt that cannot be discharged include some taxes, spouse or child support, student loans, debts for personal injury and debts owed for driving under the influence.
2. Under Chapter 13, some debts can be discharged that would not be dischargeable under other chapters. These include some taxes, some personal injury debts and debts from property settlements during a divorce. Petitioners can also file a hardship discharge if they are unable to complete the planned payments due to circumstances beyond their control.
Discharge is not a confirmed thing
Creditors can object to and block a discharge by filing a complaint in the bankruptcy court. This is known as an adversary proceeding. The court can deny a discharge if you delay or hinder the proceedings. For instance, you will not receive a discharge if you do not supply the proper documents, fail to complete the required educational courses, wilfully conceal or destroy records or property or perjure yourself.
A discharge can be revoked if it is determined that it was obtained fraudulently. This typically occurs within one year of the discharge.
Consider repaying some discharged debts
You may choose to repay some debts that have been discharged. Discharged debts cannot be legally enforced, but you can voluntarily repay them. For instance, if you owe a family member some money, you may choose to repay that debt. Also, you may want to repay a debt to someone whose opinion is important to you. An example would be debts for medical treatment from a family doctor.
Keep copies of the discharge court papers
Keep all discharge court papers and decisions for your records. They will help you prove the debts have been discharged in the event creditors attempt to collect old debts. Creditors may claim that debts were discharged dishonestly, so having the papers to prove the court’s decision can be quite useful.