Bankruptcy is the last option any person wants to take. Filing bankruptcy can cause your credit rating to go down. However, sometimes filing for bankruptcy is the only solution to get a person out of their debt burden when finances are out of control. In many cases ones credit can be better within 24 months after filing.
7 Simple Steps For Filing Bankruptcy
1. Filing bankruptcy allows for a fresh start. Under the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA"), which significantly amended the U.S. Bankruptcy Code effective October 17, 2005, prior to filing a bankruptcy case, an individual must obtain some consumer credit counseling from an entity approved by the U.S. Trustee within 180 days of the date of the filing of a bankruptcy case. Such counseling is intended to provide an individual with alternatives in filing a bankruptcy case.
2. Consider the two common bankruptcy types. The most popular is the chapter 7 (which is a straight or liquidation bankruptcy), and there is also the chapter 13 (which is a repayment plan for individuals). BAPCPA has made chapter 7 to be more difficult to file, because of the means test. Many individuals will be forced to file a chapter 13 case because of this test.
3. Research your options as it relates to filing. Some people choose to file without the aid of a lawyer. But it's highly recommended to hire a lawyer. Your research should help you decide on a lawyer suitable for your situation. In most cases, people who choose large firms to represent them will work with a paralegal and not the lawyer. Try to find a firm in which you have direct contact with your lawyer.
4. Meet with the lawyer you've selected and go over your case. Your lawyer should be asking for all of your financial information as well as be answering all of your questions. They will determine which chapter is best for you, based on your financial affairs. A lawyer will also assist you with completing the BAPCPA's means test.
5. Find out how much it will cost. The fees for filing are varied. Some lawyers will charge a flat fee, while others will charge based upon the amount of debt that you have. Some lawyers will require that you pay up front before they file. Refer all creditors to your lawyer's office, once he or she has been retained.
6. Wait for a meeting of creditors. Once your lawyer has submitted your petition, you will be notified by mail with your date for a meeting of creditors (or a "341 meeting," named after the section of the Bankruptcy Code requiring it). This will allow the trustee to ensure that you have given truthful answers on your bankruptcy petition, and that you understood and agreed to filing for bankruptcy.
7. In filing a bankruptcy case, do not use your credit cards. If you do so with the intent to file, a creditor can challenge the discharge of the debt owed or even your right to discharge any debt. If you obtained the debt knowing that you could not repay it, you may not be able to discharge that debt if the creditor challenges it through a lawsuit, or adversary proceeding, in your bankruptcy case.
If no such lawsuits are filed, shortly after that 60th day you will receive notification of a discharge of debt if you filed chapter 7. A discharges means that you have no further obligation to repay the discharged debt, the existence of that discharged debt may still appear in your credit reports though, and that your creditors can never collect the debt from you.
If you filed a chapter 13 case, you will receive the notice of discharge approximately 30 to 60 days after your final payment has been made and the trustee ensures your payment plan has been followed and completed.
An attorney should explain that before a debtor can file a bankruptcy case, they should undergo credit counseling, budgeting and debt managements before the debt can be eliminated. It may be a little tougher to retain an attorney to represent you in a bankruptcy case because the new law imposes new requirements to the attorneys.
If you retain a bankruptcy attorney be sure to have all the details of the new laws explained to you. An effective bankruptcy attorney should at least take the time to explain all the details before you file and give you an idea of how to manage your debt and how to eliminate your debt burden once and for all.