If you find yourself facing extreme financial hardship, filing personal bankruptcy might be your first and only option. Personal bankruptcy comes in 2 flavors, chapter 7 bankruptcy versus chapter 13 bankruptcy. Chapter 7 bankruptcy is also known as the liquidation bankruptcy, meaning that you generally will not be required to pay back the creditors while your assets might be sold off to pay back the creditors. Chapter 13 bankruptcy is also known as the reorganization bankruptcy. In chapter 13 bankruptcy, the court will work with you to determine what you are allowed to keep, while you are obligated to pay back the creditors over a period of 5 years generally. All in all, personal bankruptcy is not a complicated process and we will explore what is involved in this article.
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Since 2005, bankruptcy law has changed significantly to dissuade people for filing personal bankruptcy on the whim. In order to file for personal bankruptcy now, the applicants will be required to go through a pre bankruptcy and post bankruptcy credit counseling. This required credit counseling is aimed to educate the American public on the importance of financial planning and the hope is that the individuals filing bankruptcy will take heed of it and not make the same mistake again. You will need to complete the pre bankruptcy credit counseling course in order to file the bankruptcy petition.
Once you have decided to file for personal bankruptcy, you will need to fill out the petition documents with the state that you live in. Many supporting documents will need to be included in the petition and they include:
- Statement of financial affairs
- Pay stubs from the last 60 days
- Most recent tax return Bankruptcy filing fee (each state can be different)
- Proof that you have attended the credit counseling
In the statement of financial affairs, it will include:
- Any legal judgment against you
- Bank statements Any pending, future, and current alimony payments
- All retirement plan statements
- Any child support
- List of all creditors and the statements
In the petition, you will also state if you are filing for chapter 7 or chapter 13 bankruptcy. In order to qualify for chapter 7 bankruptcy, you will need to pass the “means test”. The “means test” is a way to make sure that you can file chapter 7 bankruptcy, which is generally the more desirable one because you will not need to back the creditors. The “means test” is basically a way for the court to determine if you have the ability to pay back the creditors or not, given your true financial position. The court also tries to screen out those individuals who are trying to avoid paying back the creditors by seeking for chapter 7 protection. Using the “means test”, the court generally can determine if the individuals filing personal bankruptcy should file chapter 13 instead. The chapter 13 bankruptcy also protects the creditors in some respect because they will be eligible to receive some repayment from the lender.
Once you have compiled all the required petition documents, you will submit the entire set of documents to the court. 7-10 days after your petition submission, you will be assigned a bankruptcy trustee and the date of the meeting with the creditors (also known as 341 meeting). You will not be meeting with a judge in your bankruptcy case, only a bankruptcy trustee, who actually acts and functions as the bankruptcy judge. Your bankruptcy case is overheard by the bankruptcy trustee usually 30 days after you have submitted the petition documents. When you arrive in the 341 meeting, you will be asked to swear under oath that you are telling the truth regarding every aspects of your financial status as documented in the petition documents. Even though the 341 meeting is also called the meeting with the creditors, generally the creditors you have listed in the bankruptcy petition will not be present. Even though the creditors are not present in the 341 meeting, it does not mean that they will not challenge your bankruptcy proceedings.
Once the 341 meeting is concluded, it basically becomes a waiting game for you. The bankruptcy trustee will be doing his/her due diligence to make sure that all the creditors will get a chance to dispute your personal bankruptcy petition. If none of the creditors object to your particular personal bankruptcy discharge, the bankruptcy trustee will issue the appropriate discharge papers. When you get the official bankruptcy discharge letter, it means that you have eliminated all the debt that were listed in the bankruptcy petition, with no chance for the creditors to pursue any repayment.