How to File Bankruptcy
by Dean Shainin
Bankruptcy can be a hard pill to swallow, especially if you consider yourself to be responsible.
However, this law was put into place for your protection. The credit card companies don't care about making things easier for you, no matter how loyal you have been. Here's what to expect, and how to make it as painless as possible.
Steps to File Bankruptcy
1. Make sure that there are no other alternatives.
A bankruptcy will remain on your credit file for up to ten years. However, if you are considering filing, your credit is probably already in bad shape. 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 to 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 it more difficult to file a chapter 7 case because of the means test. Many individuals will be forced to file a chapter 13 case because of the means test.
3. Research your options as it relates to filing.
Some people choose to file without the aid of a lawyer. However, it's highly recommended to hire a lawyer. Your research should help you decide on a lawyer. 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 and 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. The former is always the best route to go. Some lawyers will require that you pay up front before they file. Others will allow you to pay in installments, and will file the case with a deposit. The average fee is $1,700. There are some places that will file for free if you do not have the financial means to do so. The average fee will vary depending upon where you live. A lawyer cannot be your creditor in a chapter 7 case, so the attorney's fee for a chapter 7 case must be paid in full before the case is filed. If you still owe an attorney part of the bankruptcy fee when you file a chapter 7 case, it becomes un-collectible and the attorney must waive the unpaid balance or else cannot continue to represent you. In a chapter 13 case, if agreed with the lawyer, the entire attorney's fee need not be paid prior to filing, and may be paid through your chapter 13 plan.
6. Refer all creditors to your lawyer's office, once he or she has been retained.
They will then be able to speak on your behalf (which means no more annoying calls). Once your lawyer has filed your case, the "automatic stay" goes into effect. This means that NO creditors should be contacting you about your debt. This stay is enforced, and creditors can be liable if they go against it. A willful violation of the automatic stay can result in damages being assessed against a creditor, including a reasonable attorney's fee, and in appropriate cases, punitive damages may be awarded.
7. Wait for a meeting of creditors.
Once your lawyer has submitted your petition, you will be notified by mail (most often) of your date for a meeting of creditors (or a "341 meeting," named after the section of the Bankruptcy Code requiring it). This meeting allows the trustee to ensure that you have given truthful answers on your bankruptcy petition, and that you understand and agree to filing for bankruptcy. Your lawyer should have met with you prior to this meeting to go over all of your debt to ensure that it is all listed. You must also list all of your assets. He or she will also go over sample questions that will be asked at the meeting. Prior to the meeting, you should have reviewed your file with your lawyer. Once you are sworn in at the meeting, you will answer questions that are recorded. The meeting will last about ten minutes.
8. If you are thinking about 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.
9. 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 the trustee determines that all your assets are exempt, a report of no distribution will be filed with the bankruptcy court. If the trustee determines that there are non-exempt assets, they will be sold and payments may be made to your creditors. In a chapter 7 case, you may never have to pay a creditor back.
In a chapter 13, you will be required to enter into a 3 to 5 year plan, in which you will pay creditors as much as you can over time, taking into consideration the BAPCPA means test.
10. The 60th day after your meeting of creditors is first set is the deadline for creditors to file lawsuits 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. 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), and that your creditors can never collect the debt from you. If you filed 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. Not all debt is discharged in a chapter 7 or 13 case, including student loans and certain taxes, so you may not be completely. relieved of the obligation to repay all debt. Whether or not a debt is discharged depends upon certain Bankruptcy Code provisions, and with respect to some debts, whether or not a creditor succeeded in convincing a judge that your debt to that creditor should not be discharged.
Tips to File Bankruptcy
Make sure you do research. This allows you to be informed and proactive.
Even rich people file - in fact, most often these are the people who use the system to their benefit, so you should as well!
Make sure to include all of your eligible debt.
There are some debts that can not be discharged. This includes student loans and tax bills. However, in most cases, these organizations will work with you.
Remember that after you have filed, the "automatic stay" is in effect and creditors cannot contact you or try to collect the debt. If they do, they are breaking the law and you need to notify your lawyer.
Although bankruptcy stays on your credit report record for up to 10 years, you will be able to re-establish credit. There are many companies who specialize in helping people to re-establish their credit. The fees may be higher, but in the long run, this can help you (if you are responsible).
Your employer and landlord will not be informed of your bankruptcy, unless they are a creditor. However, because this is a matter of public record, anyone who is curious can find out that you indeed filed.
Keep all of your bankruptcy filing records for at least a year after filing, including all back-up documentation.
The parties to which you owe debts can decide to challenge the discharge of a particular debt or of your entire discharge any time from the day you file the case through the 60th day after the date first set for the meeting of creditors. This almost never happens, because the burden of proof is almost always on the creditors, and often their insurance will cover a discharge of debt.
Make sure that you have a good rapport with your lawyer, and that you are comfortable.
Warnings
Credit repair companies are often bogus - you end up with more debt!
Bankruptcy can stay on your credit record for up to 10 years after filing. Upon doing a credit check, a potential employer will learn that you filed a bankruptcy case. Many companies don't like to see a bankruptcy. It could sometimes be as though your bad credit is still on your record.
You can only receive a chapter 7 bankruptcy discharge once every eight years, so be careful about the amount of debt you take on after you chapter 7 case has been discharged. Chapter 13 bankruptcies can be filed at any time.
The law has changed under BAPCPA on how bankruptcies can be filed and eligibility for chapter 7. Now that the BAPCPA has gone into effect, it is extremely important that you consult with an attorney in order to determine your eligibility to file a chapter 7 case.
If you are going to file a chapter 7 case, lawyers can only accept installments for the attorney's fee prior to filing the chapter 7 case.
As noted above, if you have not fully paid the agreed fee prior to the filing of the bankruptcy case, your lawyer has to waive the balance in order to continue representing you because the lawyer cannot be your creditor. A lawyer who seeks to collect the unpaid portion of the attorney's fee after the chapter 7 case has been filed is violating the automatic stay, which means they can't pressure you to pay them the balance of the attorney's fee after you file.
Copyright 2006 Dean Shainin
Dean Shainin offers online bankruptcy and debt advice. For more information, articles, news, tools and valuable resources on bankruptcy and debt solutions, visit this site: http://bankruptcy.deans-knowledgebase.com
Back to RepairCreditAmerica.com opening
© Copyright 2006 All Rights Reserved
This site is maintained and hosted by Alliance Internet Marketing
This site is best viewed with Internet Explorer or Netscape versions 4.0 or higher
