What You Didn't Know About Filing For Bankruptcy

File for Bankruptcy What You Didn't Know About Filing For Bankruptcy

Filing for Bankruptcy Made Simple

Though filing for bankruptcy may bring with it the stigma of irresponsible spending, it most often occurs due to financial hardship, usually through no fault of the person filing the bankruptcy documents. The decision to file represents a stressful one, but DoNotPay offers a product that will take much of the uncertainty and tedious details.

Common reasons for filing bankruptcy include mounting medical bills, unpaid illness or lost wages, or unexpected events such as family emergencies or divorce.

The rate of filed bankruptcy grew significantly from 1980 until it reached its peak in 2005, with over two million bankruptcy cases filed. Today, men and women continue to file for bankruptcy at about the same level.

The average age of those needing to file continues to rise as those age 55 and up find the need to file due to medical costs bringing the median age to about 48 years.

The U.S. also continues to see an increase in income and educational levels among those filing for bankruptcy. College-educated individuals laden with student loan debt may suffer financial hardship even with higher incomes.

If your financial situation seems unmanageable and continues to create stress and uncertainty in your life, you may, indeed, want to consider filing for bankruptcy.

What Is Bankruptcy?

Bankruptcy represents a federal court process to assist those experiencing severe financial circumstances eliminating debt or paying it off under the protection of bankruptcy court. Most of the time, the individual or married couple who carry the debt file for bankruptcy voluntarily.

Types of bankruptcy:

Two types of bankruptcy exist for individuals or married couples to file.

Chapter 7Also known as liquidation, Chapter 7 takes non-exempt assets and converts them into cash. Often, material goods get returned to the creditor unless the debtor arranges to reinvest more significant property such as a home or a vehicle.
Chapter 13Also known as 'reorganization,' Chapter 13 represents a bankruptcy option for individuals with a steady income. Some of their debt may see a reduction or even total forgiveness, but the primary advantage of Chapter 13 involves keeping possession of your assets.

It's recommended that to achieve the best opportunity for renewed finances and retaining possession of necessary assets that you hire an attorney to determine if Chapter 7 or Chapter 13 makes the most sense for you;

Will I Lose My Property If I File for Bankruptcy?

The property one may keep after filing bankruptcy depends on whether or not they file for Chapter 7 or Chapter 13.

Chapter 7:

If you file for Chapter 7, expect to give up non-exempt and luxury property. This property may include:

  • Equity in a home above a certain dollar amount
  • Luxury items such as furs and expensive jewelry
  • A second property such as a summer cabin or vacation timeshare

Property You May Keep after Filing Chapter 7 Include:

  • Equity in your home with a dollar limit based on your debt
  • The personal property needed for daily lives such as clothing, appliances, and furniture
  • You may keep at least one motor vehicle capped at a particular amount depending on your debt
  • Cash value of insurance policies
  • Retirement plans
  • Benefits including Social Security and Unemployment
  • Equipment needed for your profession
  • Wages

Chapter 13:

Filing Chapter 13 represents a court-ordered debt repayment plan and does not require liquidating assets. The filer must turn over 25% of their income to court, and the court disperses the funds to the creditors, usually around three to five years. This time frame means the time frame to complete Chapter 13 lasts significantly longer than Chapter 7.

Those filing Chapter 13 may keep their assets. They do, however, give up a significant portion of their income. Since the Chapter 13 plan depends on consistent employment, job loss for any reason will interrupt the plan. Job insecurity and other emergencies result in only 35% of filers completing the program.

Additionally, Chapter 13 costs more to file upfront in administrative and court fees. Still, if one earns a steady income, several reasons exist to file for bankruptcy under Chapter 13:

  • You keep your assets
  • Chapter 13 represents a better choice for your credit report
  • More debts fall under the dischargeable under Chapter 13
  • You may make up late payments on your home or car
  • You receive the security and guidance of the court to help you pay your debts
  • You don't want creditors to go after a co-signer on one of your loans
  • You already filed for Chapter 7 fewer than eight years ago
  • Under Chapter 13, it's easier to resolve tax debt

What Won’t Bankruptcy Cover?

Bankruptcy doesn't represent a quick financial fix. Certain debts don't get covered at all under Chapter 7, and under Chapter 13, they will increase the time of the repayment plan, or the obligations will remain after the course of the repayment plan. The debts listed below do not get discharged when you file for bankruptcy:

  • Child support and alimony payments
  • Unlisted debts
  • Recent income tax debt
  • Legal fines
  • Most student loans
  • Payments under a divorce decree or settlement
  • The debt you incurred illegally
  • Credit purchases made within 90 days
  • Restitution or damages you're ordered to pay in a Civil Action suit

How to Determine If Filing for Bankruptcy Makes Sense for You

The decision to file for bankruptcy may come with anxiety and confusion. It may make sense to seek the counsel of an attorney or other expert if you're unsure whether to take the following steps. The list below offers some guidance on deciding to file for bankruptcy:

  • Your attempts to control your spending failed through previous debt consolidation plans.
  • Your income does not cover your current debt obligations.
  • You tried making arrangements with creditors unsuccessfully.
  • Your ratio of debt to your annual income measures above 40%.

When Is Chapter 7 a Bad Idea?

Though Chapter 7 may seem like a quicker process and potentially a cleaner financial slate, instances exist where it does not represent a good idea:

  • You don't possess non-exempt assets
  • You filed for Chapter 7 fewer than eight years ago
  • You don't want to bestow the burden on a co-signer
  • You don't want to give up property or equity in your property
  • You are guilty of defrauding your creditors

What Documents Do You Need to File for Bankruptcy?

Before you pursue filing for bankruptcy, make sure you've gathered the following information and the supporting documentation:

  • Tax returns
  • Proof of income
  • Mortgage and fair market value of your real estate
  • Vehicle registration and proof of insurance
  • Retirement and bank account statements
  • Federal or State issued identification

How to File for Bankruptcy on Your Own

Once you've gathered the information you need to file for bankruptcy, you'll want to follow the following steps for Chapter 7 and Chapter 13:

Chapter 7:

  1. Make an appointment with an approved credit counseling agency for advice and analysis within 180 days of filing.
  2. You or your attorney may file the petition and appropriate forms with the Clerk of the United States Bankruptcy Court in your area.
  3. Once filed, an Automatic Stay will go on your account, which prevents creditors from contacting or harassing you.
  4. After the filing of the petition, the court appoints a trustee who works with the creditors to recover the money owed. The trustee's pay depends on the amount of money recovered for the creditors.
  5. After reviewing your file, the trustee holds a short "creditor's meeting" hearing, which the person filing must attend.
  6. After the meeting, the court-appointed trustees take control of your property for sale to the secured creditors. Any remaining cash from the sale of your properties gets distributed to other creditors.
  7. The bankruptcy then holds a meeting to inform you of the discharge status of your debts.
  8. Before discharging your debt, you're required to complete a course on personal financial management.
  9. You may decide to keep making payments on assets held as collateral if the court approves it.

Chapter 13:

  1. Visit an approved credit counseling agency for counsel and analysis within 180 days of filing.
  2. Contact an attorney with experience in Chapter 13 Bankruptcy.
  3. The attorney will file the petition with the United States Federal Court and the copies of the required documents.
  4. You must file a repayment plan for your debt within 15 days which outlines full payment to priority claims.
  5. Once you file the bankruptcy petition, the automatic stay goes into effect. The automatic stay prevents creditors from harassing you.
  6. The trustee appointed to your case will collect the money you pay on the plan and disburse it among the creditors.
  7. You must begin payments to the trustee within 30 days.
  8. A '341' meeting takes place within 40 days of filing your plan, the trustee, the creditors, and you. You will receive questions from creditors and the trustee.
  9. The bankruptcy judge will determine if your plan meets the feasibility requirements at the confirmation hearing. The creditors may influence the judge, but the decision ultimately goes to the judge.
  10. Once the plan becomes confirmed, the responsibility goes to the filer to ensure it's successful and completed.

Let DoNotPay Take the Stress and Guesswork Out of Filing for Bankruptcy

Needing to decide to file for bankruptcy already represents an incredibly stressful task. DoNotPay's product to help you through the filing for bankruptcy process eliminates much of the tedious work and frustration.

Why try to do it all on your own when DoNotPay helps you with the process by just following these steps:

  1. Search for File for Bankruptcy on DoNotPay. 
  2. Put together a list of your debts, expenses, and assets. If you need help accessing information like your credit report, DoNotPay can help you get your report. 
  3. Let DoNotPay walk you through your bankruptcy options and help you determine whether a Chapter 7, Chapter 12, or Chapter 13 bankruptcy is right for you. 
  4. DoNotPay will then help find the best credit counseling course near you, which you need to complete before filing your bankruptcy forms. 
  5. Lastly, DoNotPay will gather all of the forms you need (including available fee waivers) and help you locate your nearest bankruptcy court. All you have to do is complete the required forms, prepare your filing fee, and file the application with your local court. 

And that's it! Once done, the court will give you:

  • The bankruptcy case number
  • Your bankruptcy trustee's name
  • The location, date, and time of your meeting with your trustee
  • At this point, you've completed the filing of your case. Congrats! The automatic stay will protect you from all debt collectors. Your trustee will then contact you for further financial documents you will need to provide. Make sure to attend your meeting and complete the post-filing bankruptcy debtor's course!

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