There are two main bankruptcy filings for individuals: Chapter 7 and Chapter 13. A Chapter 7 bankruptcy filing involves a liquidation of assets, which are then distributed to creditors. The debtor is cleared of all dischargeable debts, usually within four months of filing. A Chapter 13 filing is a reorganization of debt over a three- to five-year period. These are for persons who can pay off their debts after a renegotiation with creditors and the reorganization of assets to debt.
A bankruptcy attorney usually is involved in filing for either a Chapter 7 or Chapter 13. The attorney will give you a consultation and outline what items you need, such as a list of all debts, assets and incoming cash. The attorney will also set up all your court appointments, negotiate with creditors and attend the mandatory Section 341 meeting where the court, debtor and creditors meet to discuss bankruptcy terms.
Bankruptcy is not free. Costs vary per state, but the court will charge a fee to file a Chapter 7 or Chapter 13 bankruptcy. The filer will also need to pay attorney’s fees, usually about $2,000, which increase proportionately to the complications of the case.
Before a bankruptcy filing can be submitted, the debtor must go through a counseling course that must be completed six months prior to filing the paperwork. In order to get the debts discharged after filing a Chapter 7 bankruptcy, the debtor will also have to pass a personal money-management course.
Chapter 7 and Chapter 13 bankruptcies must be filed in court. The clerk of the court will then inform creditors that a bankruptcy petition has been filed, which will stop most legal actions by a creditor, and wages cannot be garnished to collect debt. Twenty to 40 days after the initial filing, the court will hold a Section 341 meeting where the terms of the bankruptcy will be determined. After that, a trustee will be appointed who will sell assets to pay creditors and the debtor will be discharged of most debts within three to five months. Unsecured debts that can’t be discharged include child support or alimony, debts resulting from a drunk driving incident, student loans and income tax debt.
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