What to do When Declaring Bankruptcy
What Does Bankruptcy Mean?
Bankruptcy is a scary idea for people who are facing financial challenges. But what does it really mean? Bankruptcy is when you owe more than you can afford to pay. As a first step in deciding whether to declare bankruptcy, here are some questions to ask yourself:
- Are you getting calls from bill collectors?
- Do you use credit cards to pay for necessities?
- Are you making only minimum payments on your credit cards?
- Are you considering debt consolidation?
- Are you unclear as to how much you actually owe?
If you answered yes to more than two of these questions, it’s time to give your financial situation more thought. Determine where you are financially but adding up all of your liquid assets – retirement funds, stocks, real estate, vehicles, etc. Then, add up all the payments you owe. If the value of your assets is less than the amount of your debt, you may want to consider bankruptcy.
What To Do When Declaring Bankruptcy
You may voluntarily file for bankruptcy or creditors may ask the court to order you bankrupt. Consult one of our 1-800-THE-LAW2 lawyers if you find yourself in either situation. Filing voluntarily is considered Chapter 7 bankruptcy. What do you need to do to file bankruptcy voluntarily?
The first step is analyzing your debt. Then determine your property exemptions. Each state has specific laws on what types of property you are entitled to keep if you file for Chapter 7 bankruptcy. Once you have figured out your assets, make sure you are eligible. If your average income during the six months before you file is more than the median income for a family of your size in your particular state, you may not be allowed to voluntarily declare bankruptcy.
If eligible, the next step is to redeem or reaffirm secured debts. Fill out the bankruptcy forms – usually a few dozen pages in which you tell the courts about any owned property, debts, income, expenses, etc. File the forms to officially start your case and attend a short meeting with the trustee to answer questions about the information in your forms. During the process, file objections or motions if needed to dispute a creditor’s claim against you or if you want to eliminate certain liens. Act on your promises to handle your secured debts.
Within four months, you will get a notice of discharge, but the record of your bankruptcy will stay on your credit report for 10 years. This may not be the best option for individuals who own homes or companies they want to keep.
In that case, Chapter 13 bankruptcy may be a better option. Also known as reorganization bankruptcy, it allows people with consistent income to pay off their debts over a timeframe of three to five years, while still keeping their property and possessions. Once the courts approve the bankruptcy, creditors are prohibited from calling the debtor. You’ll need to file a payment plan and begin making payments within 30 days, even if the court has not yet approved it.
Individuals making all of their payments during the specified timeframe will have eligible debts discharged at the end of the repayment period. Even if your plan allowed you to pay less than 100% of your unsecured debts, the remainder will be discharged in full upon successful plan completion.