Bankruptcy is a court proceeding in which a judge and court trustee examine the assets and liabilities of individuals and businesses who can’t pay their bills and decide whether to discharge those debts so they are no longer legally required to pay them.
Bankruptcy laws were written to give people whose finances collapsed, a chance to start over. Whether it was bad decision-making or bad luck, lawmakers could see that in a capitalistic economy, consumers and businesses who failed, need a second chance.
The American Bankruptcy Institute (ABI) did a study of PACER stats (public court records) from 2016 and found that 95.5% of the 499,909 Chapter 7 bankruptcy cases decided that year were discharged, meaning the individual was no longer legally required to pay the debt.
Only 22,388 cases were dismissed, meaning the judge or court trustee felt like the individual had enough resources to pay his/her debts.
Individuals who used Chapter 13 bankruptcy, best known as “wage earner’s bankruptcy,” were about split in their success. Slightly more than half (166,424) were discharged and 164,626 were dismissed.
First, you need to know whether you need to file bankruptcy. Filing bankruptcy is a way to stop a garnishment as soon as the bankruptcy petition has been filed. Chapter 7 bankruptcy is a very effective tool for erasing credit card debt, medical debts, and most other unsecured debt. But you can only be use it once every 8 years. Chapter 13 bankruptcy is another type of bankruptcy available to consumers. The main difference between Chapter 7 and Chapter 13 is that you pay a portion of your debts making monthly payments to the Chapter 13 Trustee. You only pay as much as you are able to base on the means test and your actual income and expenses, without regard for interest rates on unsecured debt. Debts like student loans, child support, alimony, and recent tax debts will not be eliminated when your bankruptcy discharge is granted under any type of bankruptcy. Also, if you have any cosigners, they will not be protected by your personal bankruptcy. Temporary debt relief is immediate in all types of bankruptcy as the automatic stay prohibits creditors from contacting you as soon as you or your bankruptcy lawyer file your bankruptcy petition. It also stops a garnishment right away.
That’s one of the most important bankruptcy basics that everyone should know. Depending on the filer’s credit score when the Chapter 7 bankruptcy is filed, it may initially drop a little. However, once the debt relief becomes permanent when the bankruptcy discharge is entered, most people are able to rebuild their credit score within less than one year. In the United States, filers in 96% of all Chapter 7 consumer bankruptcy cases are able to keep all of their property even after their bankruptcy filing.
Collect Your Documents For Bankruptcy
Before getting started, you need to collect all your financial documents so you understand the current state of your finances.
First, you need to obtain a copy of your credit report from Experian, TransUnion, or Equifax to learn how much debt you owe. You can obtain your credit report from all three at AnnualCreditReport.com for Free.
Some of your debts may not be listed on your credit report, like medical bills, personal loans, or tax debts. Make a list of any missing debts as you will need to list all of them on your bankruptcy forms.
In addition to your credit report, you will need the following documents:
• Tax returns for the past 2 years
• Pay stubs or other proof of your income for the last 6 months
• Recent bank account statements
• Recent retirement account or brokerage account statements
• Valuations or appraisals of any real estate you own
• Copies of vehicle registration
• Any Other Documents Relating to Your Assets, Debts, or Income. Having these documents next to you will help you get an accurate picture of your finances.
Get Credit Counseling
An important first step to the bankruptcy process is credit counseling. Everyone who files for bankruptcy is required to take a credit counseling course that is approved by the Department of Justice. Credit counseling courses like this one give you an idea of whether you really need to file for bankruptcy or whether you could get back on your feet through some type of informal repayment plan.
You will provide the credit counseling agency with your income and expenses. Together, you will review the options for repaying the debt, like debt consolidation, or debt settlement. In many cases, this exercise only confirms that you don’t have any feasible options for addressing the debt other than bankruptcy. But it’s a valuable exercise even still.
The course takes at least one hour and can be completed online or by telephone. The course fee ranges from $10 to $50, depending on the provider. But if your household income is under 150% of the federal poverty line, you should be able to get this fee waived.
Once you complete the course, you will receive a certificate of completion. Keep it. You will need to give a copy of this certificate to the court when you file your bankruptcy forms.
This is the most time-consuming step. The Bankruptcy Forms include 23 separate forms totaling roughly 70 pages. The forms ask you about everything you make, spend, own and owe. If you download and print out the forms online, you will have to enter repetitive data and make lots of math calculations. You really need to hire a lawyer.
Filing for Chapter 7 bankruptcy normally requires a $335 filing fee, which must be paid to the court in person in exact change.
If you don’t have the funds to pay the filing fee now, you can complete a special form, asking to pay your fee in installments. You can ask to pay the $335 fee in up to 4 payments within 120 days of your filing date.
If paying in installments isn’t even possible, you can submit another form to apply for a fee waiver. To qualify, your total household income must be under 150% of the federal poverty line. The court will decide whether you get a fee waiver after you file. If your application is denied, the court will order you to pay the fee in installments.
Once you have prepared your bankruptcy forms, you will need to print them out for the court. You must print them single-sided. The court won’t accept double-sided pages.
You will also need to sign the forms once they are printed.
Most bankruptcy courts require just 1 copy of the petition, but some courts like the bankruptcy court in Manhattan require 4 copies. So call your local bankruptcy court to find out how many copies you will need to bring.
Don’t do it yourself. You wouldn’t do your own open heart surgery. Don’t do your own legal work.
The clerk will take your bankruptcy forms and ask you to take a seat in their waiting room. It shouldn’t take long for the clerk long to process your case – about 15 minutes. During this time, they will scan your forms and upload them to the court’s online filing system.
As soon as they are done processing your forms, the clerk will call you back to the front desk. The clerk will give you:
• Your bankruptcy case number
• The name of your bankruptcy trustee
• The date, time, and location of your meeting with your trustee (this is called the “Meeting of Creditors” or “341 Meeting”)
At this point, your case has been filed! Congrats! Something very important has just happened. Your debt collectors are now legally prohibited by bankruptcy’s Automatic Stay from contacting you to collect your debts, from garnishing your wages, or foreclosing on your property. This lasts until the end of your bankruptcy case, at which point most, if not all, of your debts will hopefully be erased.
But you’re not home yet – there are other steps you need to complete to get a fresh start!
The bankruptcy trustee is an official appointed by the court to oversee your case. Pay attention to mail you receive from the trustee after filing. The trustee will send you a letter asking you to mail them certain financial documents, like tax returns, pay stubs, and bank statements. If you don’t mail the the trustee the requested documents, you will not get a discharge of your debts.
As soon as possible after filing your bankruptcy forms, you also need to take your second mandatory bankruptcy course. The second course, called the Debtor Education Course, is similar to the credit counseling course. But it is designed to educate you on making smart financial choices so that you won’t have to seek bankruptcy relief in the future.
Course 2 can be completed online or by phone and takes at least 2 hours to complete. The fee for the course ranges from $10-$50. But the fee may be waived if your household income is under 150% of the federal poverty level.
If you don’t complete the course, you will not obtain a fresh start. So, make sure to complete the course as soon as possible after filing.
Attend Your 341 Meeting
Finally, you need to attend your 341 meeting. The location of the 341 Meeting depends on where you filed your bankruptcy case.
Usually, the 341 Meeting takes place about a month after filing. The main purpose of the 341 Meeting is to ensure that you are not hiding any expensive assets that should be distributed to creditors. If your papers were done correctly, you should have no trouble answering the questions. Most meetings last only about 5 minutes. Creditors are allowed to attend, although they almost never do.
Important note: You must bring your government-issued ID and social security card to the meeting. If you don’t bring them, the trustee cannot verify your identity and the meeting cannot go forward. You should also bring a copy of your bankruptcy forms to the meeting, along with your last 60 days of pay stubs, your recent bank statements, and any other documents that your trustee has asked for.
In most cases, the trustee “closes” the case at the end of the meeting. In that case, unless something very unusual happens, you get a letter two months later from the Court stating that your debts have been discharged.
10. Optional – Dealing with Your Car
Finally, there’s an additional step in the bankruptcy process if you own a car with outstanding debt. If you want to surrender the car to the lender, the lender will file a motion with the bankruptcy court to ask permission to retake the car.
Alternatively, you might choose to keep the car by “reaffirming” the car debt and continuing making payments on it. In that case, your lender would normally send you a reaffirmation agreement that you would need to sign and return within 45 days after your 341 meeting. The lender would then file the signed reaffirmation agreement with the court for approval. If the judge approves your reaffirmation, you would get a notice of reaffirmation along with your discharge. And you would be able to keep the vehicle as long as you stay current on your payments.
Finally, you may also have chosen “redeem” the car by buying it back from the lender in one lump sum, usually obtained from a lender. If you chose redemption, you will be required to filing a motion in the bankruptcy case.
Filing for bankruptcy takes some preparation. Hiring a good bankruptcy attorney is one way to file. But if you cannot afford one and you need a fresh start, you should see if you qualify for bankruptcy with Ascent Law LLC.
Bankruptcy Free Consultation
If you have a bankruptcy question, or need to file a bankruptcy case, call Ascent Law now at (801) 676-5506. We want to help you. Come in or call in for your free initial consultation.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
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