The Bankruptcy Process
Could Filing Bankruptcy Help Me?
If you're struggling to make a dent in your credit card debts or to make ends meet or if you're facing the possibility of losing your home to foreclosure, it may be time to examine if filing bankruptcy could be a good debt-relief option for you.
The U.S. Bankruptcy Code offers consumers different forms of bankruptcy protection:
- Chapter 7 bankruptcy to discharge (eliminate) unsecured debts like credit card, medical and utility bills
- Chapter 13 bankruptcy to repay secured and unsecured debts over time while putting a halt on foreclosure and repossession
But how do you know whether either of these protections are right for you?
Speaking with a local bankruptcy lawyer is a great way to examine how filing for bankruptcy may be able to help you. Simply fill out the quick case evaluation form below to be connected to a bankruptcy lawyer in your area for a free no-obligation consultation.
Generally speaking, Chapter 7 bankruptcy may be a more ideal solution if you:
- own little property except items like furniture and clothing
- have little money left after paying your basic monthly expenses
- cannot meet your monthly expenses each month
On the other hand, Chapter 13 bankruptcy may make more sense if you:
- own a home (with a lot of equity) or other property that you want to keep
- have regular income, can pay living expenses, but cannot pay your debts
While these points typically describe whether Chapter 7 or Chapter 13 bankruptcy is better for an individual, it's typically a good idea to assess your situation with a bankruptcy lawyer who knows your state bankruptcy laws.
Are You Eligible to File Bankruptcy?
Whether Chapter 7 or Chapter 13 may apply to your situation, you’ll need to know if you are eligible to file for that specific form of personal bankruptcy protection.
To be eligible to file Chapter 7 bankruptcy, you
- cannot receive a Chapter 7 discharge if you’ve received a Chapter 7 discharge within eight years. In other words, you are ineligible for another Chapter 7 discharge until eight years from the date of your prior Chapter 7 filing and discharge.
- must pass a means test. Under the new bankruptcy law of 2005, a means test was implemented for all potential Chapter 7 filers with the goal of making sure that only those people who need to file Chapter 7 were doing so. The means test consists of a comparison of your family’s income with your state’s median income for a family the same size as yours. If your income is at or below the median income, you can file for Chapter 7 bankruptcy. If not, you must move on to the next step of the means test, which takes a look at your disposable income and unsecured debts. If your disposable income over the next five years is found to be less than $6,000 ($100 a month), you pass the means test. If not, other calculations may be made, or you may file Chapter 13 bankruptcy.
To be eligible to file Chapter 13 bankruptcy, you
- cannot receive a Chapter 13 discharge if you received a Chapter 7, 11, or 12 discharge within 4 years or a Chapter 13 discharge within 2 years; however, it's important to note that foreclosure proceedings may still be halted if you have previously filed within those time frames.
- must meet certain requirements: although Chapter 13 bankruptcy does not have something as stringent as a means test, you must have less than $360,475 in unsecured debts and $1,081,400 in secured debts in order to file Chapter 13 bankruptcy.
Before Filing Bankruptcy – What You Must Do
Regardless of whether you are filing Chapter 7 or Chapter 13, the bankruptcy law of 2005 mandates that you obtain a credit counseling briefing from a certified credit counseling agency.
The credit counseling briefing hits on financial management, budget analysis and debt settlement basics in addition to keying in on possible bankruptcy alternatives.
Failing to obtain the credit counseling briefing could result in your Chapter 7 or 13 petition being dismissed on spot.
Chapter 7 or Chapter 13 Bankruptcy?
There are some key differences between Chapter 7 and Chapter 13 bankruptcy.
Chapter 7 cases are typically faster than Chapter 13 cases. In many cases, a debt discharge is often achievable within six months. A Chapter 7 debt discharge means the filer is no longer responsible for most of their unsecured debts (like credit card bills, medical debt and payday loans).
Chapter 13 cases are longer because a person is placed in a repayment plan where they payoff past-due balances on their secured debts. Most repayment plans are for a period of three or five years. In exchange for keeping current on payments, the debtor is often allowed to keep the secured debt they're working to payoff--like their home or car.
How Does the Bankruptcy Process Work?
Below is an outline of some of the typical steps that occur when a person decides filing bankruptcy is the right debt-relief option for them.
Preparing the Bankruptcy Petition
Whether you’re filing Chapter 7 or Chapter 13 bankruptcy, your bankruptcy attorney will prepare your bankruptcy petition.
You'll need to provide your lawyer with all information on your assets, income, expenses and debts. Failing to disclose all of this information to your bankruptcy lawyer is against the law and may be construed as fraud, so make sure that you are truthful, accurate and detailed when doing so.
Filing the Bankruptcy Petition with the Court
After preparing and verifying your bankruptcy petition, your bankruptcy lawyer will file it with your local bankruptcy court.
This action marks the official beginning of your bankruptcy case.
Upon receiving your bankruptcy petition, the bankruptcy court will appoint a trustee to your case. Your trustee will then invoke the automatic stay, meaning that your creditors can no longer contact or collect from you during your case.
Meet with your Creditors
Whether you’ve filed Chapter 7 or Chapter 13, you’ll need to attend a meeting with your creditors at some point during your case and testify to the accuracy of your bankruptcy petition.
The Chapter 7 Bankruptcy Case
The meeting of creditors will take place six weeks after your Chapter 7 filing. Following this, your case should move relatively smoothly. Chapter 7 discharges generally occur within a few months.
The Chapter 13 Bankruptcy Case
If you’ve filed Chapter 13 bankruptcy, you’ll also need to meet with your creditors during your case. Throughout the Chapter 13 process, you will work with your bankruptcy lawyer in developing a 3-5 year repayment plan to catch up on your secured debts. Once this plan is accepted, you will begin to work on it, with your discharge attainable at the end of the plan as long as you’ve satisfied the terms of your agreement.
Prior to a Bankruptcy Discharge
Before you can receive your Chapter 7 or Chapter 13 bankruptcy discharge, you will need to do one more thing thanks to the new bankruptcy law: you must complete an approved personal financial management debtor education course. This mandatory course a variety of topics to consider after bankruptcy, including budgeting, establishing a healthy relationship with credit and much more.
Explore the Bankruptcy Process with a Local Bankruptcy Lawyer
Getting in touch with a nearby bankruptcy attorney is a great way to delve into the Chapter 7 or Chapter 13 process as it may apply to your current situation.
We make it easy for you to find a local bankruptcy lawyer who can help you navigate the bankruptcy process. Just fill out the below form or call 888-632-0587 and we'll work to connect you with a bankruptcy attorney in your area.
The above synopsis of bankruptcy laws is by no means all inclusive and is not intended to provide legal advice. These laws may have changed since our last update and there may additional laws that apply in your situation. For the latest information on these bankruptcy laws, please contact a local bankruptcy lawyer in your area.