How to Declare Bankruptcy
Bankruptcy is a process that is able to assist people or businesses in repaying their debts under the protection of a bankruptcy court or even in some cases wipe out their debts entirely. Once you file bankruptcy, your creditors are no longer permitted to take action to collect their debts from you without approval from the court.
Declaring bankruptcy can lower the amount or remove any debt that you owe, but bankruptcy should be treated as a last resort. Although it can be helpful, there are also consequences involved to declaring it as well.
Filing bankruptcy can be fairly complicated and for that reason you should have good representation. There is a lot of paperwork involved and it is not a process that should be attempted alone. A good attorney will know the ins and outs of the system and will be able to guide you in the right direction.
A good attorney can help you decide if bankruptcy is indeed the solution for you. If you and the attorney decide to declare bankruptcy, the attorney can help you determine what steps to take and which type of bankruptcy to file. There are different types available and without the correct management from someone who knows the system, you might not make the right decision.
There are essentially two types of bankruptcy that one can declare: liquidation (also called Chapter 7) or reorganization (also called chapter 13). When it comes to liquidation, your assets are sold off in order to pay your debts. Whatever is left over is erased. Once repayment has been made, your creditors will no longer be permitted to demand repayment from you. However, the bankruptcy will still remain on your credit history for 10 years. This could have repercussions, such as other creditors not lending money to you. If you wish to purchase a car or a home, this could be a serious matter. Sometimes, after you have claimed bankruptcy, you will have your wages garnished and the courts will make payments to those that you owe money to. If you abide by the repayment plan, those particular creditors might issue credit to you in the future.
As far as reorganization is concerned, you would file a repayment proposal with the courts. This would result in you repaying some of your debts in full, partially repaying others and not repaying others at all. These types of payments plans typically run from 3 to 5 years although they can be refilled and extended in some situations.
If you own your house and are concerned about the equity that you have in it, then you might want to check out the article entitled “How to Declare Bankruptcy and Not Lose Your Home Equity”.
One of your first steps will be a meeting of your creditors. This is often called a “341 meeting.” About 30 days after filing for bankruptcy, the trustee will schedule a meeting with the debtor and with the debtor’s creditors. The debtor, you, must attend the meeting and answer all of the questions under oath.
The purpose of this meeting is for the trustee and the creditors to inquire about the debtor’s liabilities, assets, and the bankruptcy forms. The meeting is usually short. While creditors are able to attend the meeting, most do not. A creditor may decide to attend and request the trustee to collect additional information in a deposition if they suspect that fraud is being committed, however.
When you attend the meeting, you should being your bank statements, social security card, photo ID, recent tax forms, checkbook, any licenses, contracts, bill, or deeds that you might possess. The meeting could be postponed if you fail to bring something that the court needs to see.
For the most part, the trustee will only ask a small number of questions. The meeting will be recorded either by tape or a court reporter. Common questions include your name and address, whether or not you signed the petition and statements, if your assets are on the schedules, if the information in the petition and statements is correct, if you have filed for bankruptcy before, if you have transferred or given away any property in the previous year, if anyone owes you any money, if you have paid anyone a significant amount of money in the past year, and what kinds of business records you keep.
There are some debts that cannot be forgiven through bankruptcy. These can include debts that you do not list on your bankruptcy papers when you file, child support or alimony, debts that you received through a death that resulted from drunk driving or debts that incurred through injury, fines that were imposed from breaking the law, tax debts, and most student loans.