The six bankruptcy categories are named for the corresponding sections of the U.S. bankruptcy code. Petitioners file for bankruptcy according to their financial and legal status. For example, cities, counties and school districts can petition for bankruptcy protection under Chapter 9. Companies can reorganize under Chapter 11, and family farmers and fishermen can reorganize under Chapter 12. Those with assets and liabilities in multiple countries can file under Chapter 15. Consumers and small businesses often file for bankruptcy protection under Chapters 7 and 13.
Within six months of filing a bankruptcy petition, you must attend a credit counseling session with a court approved counseling service. A counselor will analyze your current financial situation, and you’ll discuss events and decisions that contributed to it. You’ll also develop a plan to address your financial situation. When you complete the course, you’ll receive certification of your attendance.
You also must attend a debtor education course before the court can discharge your debts. This course focuses on money management. You’ll need to develop and work with a budget, so you don’t fall back into financial difficulties.
Under a Chapter 7 filing, a trustee gathers and sells your assets and uses the proceeds to pay off your debts. Under a Chapter 13, however, you’ll make a proposal to pay off your debts within three to five years. When you file, you’ll need to supply the courts with documents detailing the following (as applicable):
- Listing of everything owned
- Income, along with source and frequency of payments
- Details of all expenses, including rent or mortgage, food and utilities
- Tax returns – most recent filing along with any filing during the case
- Contracts and leases
- Credit counseling certificate
- Debt education certificate
- Budgets created during counseling
- Liquidate your assets and become debt free
You can petition the courts under Chapter 7 if your income is less than your state’s median income. Otherwise, you’ll need to use the Chapter 7 Means Test Calculation to qualify. If your disposable income is more than $12,475, the courts presume abuse of the bankruptcy filing and will convert your filing to a Chapter 13. The courts also presume abuse if your non-priority secured debts are at least $7,025 and your aggregate monthly income over the last five years is at least 25 percent of this debt.
- Develop a payment plan and keep your things
If you’re a wage earner, you can file for Chapter 13 if you owe less than $383,175 for unsecured debt and $1,149,525 for secured debt, as of publication. The difference between Chapters 7 and 13 is that a Chapter 7 requires you to liquidate, and Chapter 13 allows you to keep your things. Under a Chapter 13 filing, if your income is less than your state’s median income, you’ll need to come up with a three-year plan. Otherwise, you need a five-year plan.
Your petition will be denied if a petition you filed was dismissed within the last six months because you didn’t follow court orders or didn’t show up for court.
The filing fees are $235 for a Chapter 7 filing and $245 for a Chapter 13 filing. In both cases, you’ll also need to pay a $75 administrative fee. You also need to pay a $15 trustee surcharge if you file a Chapter 7 petition. You can pay these amounts when you file or request to pay in installments.
If the court approves your request, you can pay in four installments. The last payment is due by the end of the fourth month after you filed your petition. If needed, the courts can approve an extension, in which case you must make your last payment within 180 days of filing.