Bankruptcy can be bad for your credit rating since it will remain on your credit file for up to ten years, and surely is to be avoided if possible. However, if there is no other way out of your financial problems, read on to find out how to file bankruptcy.
If you plan to file bankruptcy, you need to get some kind of consumer credit counseling from a government-approved organization. You have 180 days before you file to do this, and it usually takes about 60 to 90 minutes. It’s up to you how you are going to do it – in person, on the phone or online. In any case, you can expect an evaluation of your personal financial situation, a discussion of alternatives to bankruptcy, and a personal budget plan.
In addition, if you want to have your debt discharged you need to have evidence in the form of a certificate that you completed a debtor education course after you filed bankruptcy. Here you will learn how to develop a budget, manage money and use credit wisely. It can also be done in person, on the phone and online, however it lasts a bit longer.
Types of Bankruptcy
There are many different types of bankruptcy and getting familiar with all of them can be quite confusing. Still, you will have to choose one. The two most common types are Chapter 7 – a straight bankruptcy, and Chapter 13 – a reorganization bankruptcy.
Chapter 7 is a liquidation bankruptcy, and it is usually filed by people with fewer resources and lots of unsecured debt, such as credit cards, medical bills, and store cards whereby you do not have to put up anything as security for the debt. It includes a means test, which makes it a bit difficult to file. The debtor can expect to be discharged of all debts within four months after the bankruptcy trustee converts the property to cash, which is then distributed to the creditors.
Chapter 13 is a repayment plan for individuals with a secured debt, which includes some tangible item attached to the debt, usually a house or a car. Homeowners who are trying to avoid foreclosure and stop an action by their mortgage holder most often file it. By filing Chapter 13 bankruptcy they can restructure their debt and keep their home. The Chapter 13 plan allows a debtor to keep the merchandise or property if he pays off his debt over a period of three to five years.
You can file a bankruptcy with or without a lawyer. You can also do it online. Filing bankruptcy on your own can be quite difficult. Surely, a lawyer will know better what to do, so try to find a good one to represent you, go over your case with him, and then decide which chapter is best for you. If needed, a lawyer will also help you complete the BAPCPA’s (Bankruptcy Abuse Prevention and Consumer Protection Act ) test.
The fees for declaring bankruptcy can be quite different from lawyer to lawyer, so ask around how much they charge. It is better to be charged a flat fee than based on the amount of your debt. You may also be required to pay upfront before they file, while others will file a case with a deposit after which you can you pay in installments .
After you have filed bankruptcy, you will be meeting those involved in your bankruptcy case, like your creditors and their lawyers so that they can stop all actions they might be taking up against you.