Applying for bankruptcy can be a difficult decision but one also filled with hope and relief. The purpose of bankruptcy is to provide a fresh chance for those who have become overwhelmed by mounting financial obligations they cannot pay. Chapter 7 bankruptcy offers eligible consumers the ability to have virtually all their debt forgiven, with a few exceptions. Those who are not eligible for or interested in Chapter 7 can apply for bankruptcy under Chapter 13, which allows them to have a court-supervised debt repayment plan that meets their needs.
Decide what kind of bankruptcy you want to file. Chapter 7 has many advantages but stays on a credit report for 10 years. On the other hand, Chapter 13 is necessary for those who want to save assets such as a house, requires repayment of most debt and stays on the credit file for 7 years.
Write down a list of all your debts, including those that may not appear on a credit report such as daycare expenses. You will need this whether you apply for bankruptcy on your own or use an experienced lawyer.
Write down a list of all your assets, including personal property, savings accounts and stocks. Do not attempt to disguise or transfer your assets, because you will almost certainly be caught and criminally prosecuted for bankruptcy fraud. Honesty is essential in any bankruptcy application.
Collect and copy your recent paycheck stubs, tax returns and banking statements. In the event you do not have these documents handy, ask your employer, bank or the Internal Revenue Service to research and provide copies (in the case of your bank or the IRS, there may be a nominal fee required for this effort.)
Determine if you are eligible for a bankruptcy discharge through Chapter 7 by visiting the U.S. Trustee Program Means Testing website (see Resources section.) If you make more than your state’s median income, you may be required under federal law to pursue an application for Chapter 13 bankruptcy.
Register for and complete a U.S. Trustee Program approved credit counseling session (see Resources section.) Be sure to keep a copy of your completion certificate, as this will be required by the U.S. Bankruptcy Court before it will consider your application for a Chapter 7 or Chapter 13 case.
Download and read bankruptcy forms from the U.S. Bankruptcy Court (see Resources section.) If you are not hiring a bankruptcy attorney, print these forms and fill them out as ordered. Detailed instructions are included for both Chapter 7 and Chapter 13 bankruptcy applications.
Deliver your signed papers to your local division of the U.S. Bankruptcy Court if you did not hire a lawyer to do this for you. Filing fees usually run less than $300. However, payment arrangements can be made with the court’s consent if you have a dire financial situation.
Attend your 341 meeting (also known as meeting of creditors) as notified by the court. If you do not have an attorney, pay special attention to any court notices delivered and attend any required hearings. If all goes as planned, your case should be completed in six months or less.
Remember a Chapter 13 repayment plan usually takes at least two years to complete and during this time you are not allowed to get any new credit without permission of the federal bankruptcy court.
Do not charge items right before applying for bankruptcy. This could be considered fraud. If you already bought goods on credit cards you cannot pay, wait at least 3 months before filing your case.