Bankruptcy is the legal status of an individual or an entity, in which they are not able to pay the debts that they owe to creditors.
Although bankruptcy is declared by court orders, it is an individual who initiates the process. In the United States, bankruptcy cases are handled by the federal courts. Such cases are guided by the rules under the U.S. Bankruptcy Code. So, how does one declare bankruptcy?
As an individual, you qualify to declare bankruptcy under Chapter 7. However, to be able to qualify for bankruptcy under Chapter 7, your income should be below a given level.
To pay off your creditors, your property may be liquidated. If you had borrowed secured loans, the options you will have are to pay the creditor an amount that is equal to the current value of the property, allowing the property which you used to secure the loan to be repossessed, or to have the secured debt eliminated.
Steps for Filing Bankruptcy
Find out if you qualify
This is the first step that you need to take if you wish to file for bankruptcy. You should qualify for bankruptcy under the conditions stated by law. As earlier stated, your income should be below a given level. Thus, if you still have some income left after paying off your monthly expenses, you will then have to file for bankruptcy under Chapter 13.
Fill the bankruptcy forms
The bankruptcy forms are downloadable from the U.S Court’s websites. They are a large number of forms, where you are required to fill in your incomes and expenses, properties, and debts in full detail. Do note that if you fail to list a debt, it will not be discharged after being declared bankrupt. This means it will continue after bankruptcy.
It is recommended that you fill out the forms with the assistance of an attorney. However, should you may decide to fill the bankruptcy forms without the help of an attorney (pro se), the non-attorney prepares may assist you with the paperwork.
Receiving a bankruptcy trustee
After filing for bankruptcy, a trustee will work on behalf of you towards your creditors. This trustee is assigned to you by the courts. The trustee determines the property that you get to keep as well as ensures the verification of the information that you filled out in the bankruptcy forms.
The trustee is also tasked with liquidating the non-exempt property. However, this is under the guidance of the rules which dictate which property is exempted from liquidation. These rules vary from State to State and thus it will greatly depend on the State you are in.
Credit counseling and debtor education
As an individual filing for bankruptcy, you are expected to receive credit counseling as well as debtor education. Before filing for bankruptcy, you are to get credit counseling, whereas after you are declared bankrupt, you should receive debtor education.
Before the debts are discharged, you are expected to present the Certificates of Completion to prove that you have undergone credit counseling and debtor education. However, ensure that you undergo these with agencies approved by the Department of Justice.
Attend the 341 meeting
This is an official meeting that is held with the creditors at your trustee’s offices. Its name refers to section 341 of the Bankruptcy Code. You are expected to state why you are filing for bankruptcy and answer questions related to your debts.
In this meeting, arrangements related to the property that was secured as collateral as well as selling off your non-exempt property are made.
After this, you may be awarded a bankruptcy discharge. This is a permanent order that legally makes you no longer be liable to creditors. Thus, they should not take any legal action against you or communicate with you with regard to the debt.
The bankruptcy discharge may be expected to take effect 60 days after you, your trustees, and creditors hold the first 341 meetings.