How to File for Bankruptcy

Filing Bankruptcy can Lower Payments and Eliminate Debt

Aug 20, 2009

Get Relief From Bills by Filing for Bankruptcy, Katia Gelman

When other actions such as loan consolidation or debt relief programs don't work, bankruptcy provides a way for borrowers to get relief and a fresh start.

Bankruptcy provides a fresh start for those who have so much debt that it's nearly impossible to ever repay in its entirety. Some may even have 25% of their wages garnished. Depending on the type of bankruptcy being filed, debtors may have their loans wiped off immediately or go into an affordable debt repayment plan for three to five years.

Hiring a Bankruptcy Attorney Versus Going Pro Se

Most people hire an attorney to help handle a bankruptcy due to the complexity of the process. Those who file without a bankruptcy attorney, or "pro se," can save on attorney costs, but they have to be very careful when filing forms, including those created by companies that help fill out forms for bankruptcy cases. For example, if a pro se filer forgets to include the required credit counseling completion certificate, the case may be dismissed and the debtor may lose the right to file another case. Pro se filers are expected to know and follow all of the rules and regulations of the US Bankruptcy Court.

Chapter 7 or Chapter 13

Individuals may file for either chapter 7 or chapter 13 bankruptcy. Chapter 7 completely discharges debt but does not allow debtors to keep most property. Chapter 13 imposes an affordable repayment plan on both the debtor and all of his creditors for three to five years before a discharge of the remaining debt. A chapter 13 bankruptcy allows borrowers to keep valuable assets such as a house while creditors receive less than the total amount owed.

Due to the reforms enacted by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), debtors whose income are too high are forced to file for a chapter 13 repayment plan rather than file for chapter 7. To determine whether one is eligible for chapter 7, a means test is used which uses the debtor's income and expenses. The forms needed to perform the means testing calculation are available at the US Trustee's Office website. Many people whose income exceeds their state median income will not qualify for chapter 7, but it is best to perform the means testing calculation to be sure.

The Process of Applying for Bankruptcy

After hiring a bankruptcy attorney or deciding to go pro se, the following steps occur to finish the process of filing bankruptcy. An attorney usually assists clients in getting through all of the required steps:

Complete a debt counseling program approved by the US Trustee.
List all debts owed, including those listed in a credit report.
Gather income and expense documentation. Paystubs, bank statements, tax returns, and utility bills are some of the documentation required.
Do the calculations for the means testing.
File paperwork for a chapter 7 or 13 bankruptcy.
Attend the bankruptcy court hearing (341 meeting of creditors).
Receive decision from the bankruptcy court trustee.

Although the process of applying for bankruptcy is long, complex, and expensive, it provides debtors with hope and relief from debt they can never hope to repay.

References:

US Bankruptcy Court.

US Trustee Program.

The copyright of the article How to File for Bankruptcy in Bankruptcy is owned by John Wu. Permission to republish How to File for Bankruptcy in print or online must be granted by the author in writing.