Declaring bankruptcy can be difficult, but it may be the best option for you. According to the U.S. Courts, the number of people filing for bankruptcy declined in 2021 due to the COVID-19 pandemic. From 544,463 recorded bankruptcy filings in 2020, it dropped to 413,616 in 2021, showing a 24% decrease.
Many people were able to keep their homes and other assets despite becoming unemployed during the pandemic, due in part to the CARES Act passed in March 2020, putting a moratorium on evictions and foreclosures.
But because the pandemic is still affecting the economy, more people may need debt relief and file for bankruptcy in the coming years. But bankruptcy is not just for businesses; people can file for bankruptcy, too. If you’re considering filing for one, you should know the process of filing for bankruptcy and what to expect afterward.
1. Choose the right type of bankruptcy
The United States Bankruptcy Code offers different types of bankruptcy that people can file, and the type you choose will be dependent on your specific circumstances.
The most common types of bankruptcies for the public are Chapter 7 and Chapter 13. But there are also Chapter 11 bankruptcies, which are for businesses, and Chapter 12, which is for farmers and fishermen.
Chapter 7 bankruptcy or liquidation bankruptcy is the most common type filed by people for personal bankruptcy. In a Chapter 7 bankruptcy, most of your debts will be discharged, meaning you will no longer be liable for them.
However, some types of debt, such as child support or alimony, cannot be discharged in bankruptcy. This type of bankruptcy may be a good option if you have a lot of unsecured debt, such as credit card debt, and do not have the income to repay it.
If you have a regular income, you may be able to file for Chapter 13 bankruptcy, also known as a reorganization bankruptcy. In this type of bankruptcy, you will repay your debts over 3-5 years.
You will not be able to take on new debt during that time. After you’ve made all your required payments, any remaining balances on your debts will be discharged. This type of bankruptcy is a good option if you’re behind on your mortgage or car payments and want to keep your property.
Chapter 11 bankruptcies are for businesses, but there’s a provision that allows people to file. In this type of bankruptcy, you will reorganize your debt and create a repayment plan. This type of bankruptcy is more complex than other types because it involves business and tax debts.
So if you’re considering this type of bankruptcy, seek the help of a bankruptcy lawyer.
Farmers and fishermen can file for Chapter 12 bankruptcy. This type of bankruptcy is similar to a Chapter 13 bankruptcy but has special provisions designed to help farmers and fishermen.
Because they have unique circumstances, farmers and fishermen may not have to repay their debts fully.
2. Determine if you’re eligible to file for bankruptcy
To file for bankruptcy, you must first determine if you’re eligible. The government has set up specific criteria that people must meet to file for bankruptcy, depending on the type of bankruptcy filed.
Bankruptcy laws also require individuals to take a credit counseling course before filing for bankruptcy to ensure they understand the implications of filing.
You must pass the means test to be eligible for Chapter 7 bankruptcy. It reviews your income and compares it to the median income in your state. If your income is below the median, you will automatically be eligible to file for Chapter 7 bankruptcy. If your income is above the median, you will need to provide additional information to prove that you are eligible, such as your expenses.
Because Chapter 13 bankruptcy is for people with a regular income, you must have a source of income to be eligible. This income can come from a job, self-employment, unemployment benefits, or even disability benefits.
You’ll also need to prove that you have enough income to repay your debts. Not all of your debts must be repaid in full, but you must have enough income to make the required payments.
As with Chapter 13, you must have a regular income to be eligible for Chapter 11 bankruptcy. In addition, your debts must exceed a certain amount, and you must have a plan to repay your debts. Some of your debts may be discharged in this type of bankruptcy, but you will still be responsible for repaying most of them.
To be eligible for Chapter 12 bankruptcy, you must be a farmer or fisherman. You will also need to prove that your debts are primarily from your farming or fishing business.
3. Gather your financial documents
Once you have determined that you are eligible to file for bankruptcy, you will need to gather your financial documents. This includes your income tax returns, pay stubs, bank statements and other financial documents showing your income and expenses. You’ll need to provide these documents to your bankruptcy attorney.
Depending on the type of bankruptcy you are filing, you may also need to provide additional documents. For example, if you are filing for Chapter 13 bankruptcy, you will need to provide a list of your creditors and the amounts you owe them.
Not all of your creditors will be included in your bankruptcy, but you must list them all. You should also provide the documents to the bankruptcy court.
Organize the financial documents by type. For example, you should have a separate folder for your pay stubs and another for your bank statements. This will make it easier for you to find the documents you need.
4. Choose a bankruptcy attorney
Although it’s not required that you have an attorney to file for bankruptcy, it is strongly recommended. Bankruptcy laws are complex, and an experienced attorney can help you navigate the bankruptcy process.
In addition, an attorney can help you determine which type of bankruptcy is right for you and can help you protect your assets.
When choosing an attorney, it’s crucial to choose someone experienced in handling bankruptcy cases. It would be best to choose an attorney familiar with your state’s laws. If you’re filing for Chapter 13 bankruptcy, you may choose an attorney familiar with your area’s trustee. This trustee will oversee your repayment plan.
Some free legal services may be available to you if you cannot afford an attorney. Contact your local legal aid or administrative office to see if they can help.
5. File the bankruptcy petition
Once you have gathered all of the necessary documents and chosen an attorney, you are ready for the bankruptcy filing process.
The first step is filing a petition with your district bankruptcy court. This petition is also known as a “voluntary petition.” The petition will list your name, address, Social Security number and other information. A filing fee will also be required.
You will also need to file several other documents with the court, including:
- Your bankruptcy schedules. These schedules list your creditors, assets, and liabilities.
- Your Statement of Financial Affairs. This document lists your income, expenses, and debts.
- A list of your property. This includes any real estate, vehicles, or other property you own.
- A list of your creditors. This includes all of the people and businesses you owe money to.
Once you have filed your petition, you’ll be given a case number. You should use this number on all future documents you file with the court.
6. Attend the 341 meeting
You’re required to attend a creditor meeting after you have filed your bankruptcy petition. This meeting is also known as a “341 meeting.” The meeting is held to allow your creditors to ask questions about your bankruptcy case. They may also ask questions about your income, expenses and debts.
You must bring a photo ID and your Social Security card to the meeting. You will also need a copy of your bankruptcy petition and any documents you have filed with the court. This includes your schedules and statements.
The meeting is usually held within 30 to 45 days of your bankruptcy filing. It’s essential to arrive on time and to dress professionally. The meeting is typically held in a meeting room at the courthouse, but it may also be held at the office of your bankruptcy trustee. When you arrive, you’ll check in with the bankruptcy clerk.
7. Complete your bankruptcy case
After you’ve attended the 341 meeting, you’ll need to complete your bankruptcy case. This includes completing any required financial management courses and making all the necessary payments. If you’re filing for Chapter 13 bankruptcy, you must make monthly payments to your bankruptcy trustee. If you file for Chapter 7 bankruptcy, you must turn over any nonexempt assets to your trustee.
Once you’ve completed your bankruptcy case, a bankruptcy discharge will be entered. This discharge releases you from any debts included in your bankruptcy case. It’s important to note that not all debts are discharged in bankruptcy.
Debts such as child support, alimony, student loans and some taxes are not removed. Speak with your attorney if you have concerns about your bankruptcy case.
Filing for bankruptcy can be a complex process. However, with an attorney’s help and a little knowledge, it can be a relatively straightforward process. The most important thing to remember is that you must complete all required steps to have your bankruptcy case discharged. This will allow you to start fresh and rebuild your financial life.
This article is meant to be informational only and is not legal advice. Please consult with an attorney if you have any questions about bankruptcy.