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Filing Bankruptcy - The Process and What To Expect

Nov 15, 2007
Filing for bankruptcy can be a long and tedious procedure, with mountains of paperwork to overcome and a lot of hassles to face. Once you've decided that bankruptcy is your only option to financial freedom, what can you expect?

Credit Counseling:
Under the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA") of 2005, every person filing bankruptcy in the United States must first undergo extensive credit counseling with a court-approved counseling service.

A Big Decision:
You may have thought that deciding to file for bankruptcy was the biggest decision you'd have to make. Wrong! Next, you must decide which type of bankruptcy to file: Chapter 7 (which is a straight or liquidation bankruptcy that clears you of all your debt), or Chapter 13 (which is a repayment plan). Those wishing to file Chapter 7, must prove to the courts that they make under the average income in their state and can not repay their debt, regardless of any repayment plans devised by the courts.

Hiring a Lawyer:
It may seem stupid to pay high legal fees at a time when you're trying to get rid of your debt, not take on even more, but most financial experts agree that a good bankruptcy lawyer can save you even more in time and money. They know the laws in your state better than anyone and may be able to advise you to things you would have never known about otherwise. Besides, once you retain a lawyer, all creditors must go through his office. They are no longer permitted by law to contact you regarding unpaid debt.

A Meeting with Your Creditors:
Once your lawyer submits your bankruptcy petition to the courts, you will be notified of your date for a meeting of creditors (or a "341 meeting," named after the section of the Bankruptcy Code requiring it). This meeting is a way for you to prove to your creditors that you have answered honestly to all of their inquiries and that you completely understand the entire bankruptcy procedure and how it may affect you in the future. Your lawyer will ask you to list all of your assets for your creditors to review.

The Inability to Use Your Credit Cards:
If you are thinking about filing a bankruptcy case, stop using your credits cards immediately! If you continue to charge items even though you intend to file for bankruptcy, a creditor can challenge the discharge of the debt owed or even your right to discharge any debt.

Liquidating Assets:
In a chapter 7 case, the trustee will determine whether or not there are assets that can be liquidated and used to repay your creditors. If you're filing Chapter 13 bankruptcy you may be allowed to retain ownership of your assets, as long as you can devise a 3 to 5 year repayment plan to repay your debt.

Waiting For Your Creditors to Respond:
Your creditors have 60 days after your meeting to challenge the discharge of a particular debt or your entire discharge. 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. If you filed chapter 13 bankruptcy, discharge notice will be given about two months after you make your final payment.

Remember, not all debt is excused under either form of bankruptcy including student loans and certain taxes, so you may not be completely relieved of the obligation to repay all debt. So be certain that filing bankruptcy truly is the right decision.
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