Often seen as an option of last resort, the goal of bankruptcy is to give you a fresh start from unmanageable debt. It is a legal process that could help clear away some or all of your financial obligations or allow you to repay it under different terms from your original agreements with your creditors.
Many consumer debts are dischargeable, which means that the debt could be forgiven or renegotiated if you qualify for bankruptcy. Debts that qualify for bankruptcy include:
- Credit card and personal loan debt
- Medical bills
- Collection account debt
- Business debts
- Utility bills
- Auto accident claims
If you decide to file, the bankruptcy court will first review your case in detail. They will assess all of your debts, liabilities, and assets to determine if you qualify. Then, depending on the type of bankruptcy you are eligible for, some of your non-exempt property, or assets that can be sold, may be used as repayment towards your outstanding liabilities.
Generally, anyone can file for bankruptcy, but depending on your income, assets, and if you have filed for bankruptcy before, your options could vary. However, most tax debts, child support, and spousal support will still need to be paid. There are two types of bankruptcy that consumers generally file.
How to File for Bankruptcy
Even if you’ve determined bankruptcy is the right solution for you, it is not a simple process. And it’s not free, either. Filing costs money, as does hiring an attorney. While you are not required to hire an attorney, it is typically advised.
No matter if you go it alone or work with an attorney, here are the steps to file for bankruptcyc:}
1. Assemble your financial information
You will need to include all of your debts, income, expenses, and assets. The court-appointed trustee may request additional documentation to better understand or verify the amounts you claim, so keep your records handy.
2. Undergo credit counseling
When you file for bankruptcy, you are required to take a bankruptcy course through an approved credit counseling agency. You are in charge of finding this agency on your own, and you will need to provide proof that you have received credit counseling when you file. This type of counseling will often take an hour or two and is frequently conducted online or over the phone.
3. File your petition
After taking a bankruptcy course, you need to fill out the necessary bankruptcy petitions and submit them to your local bankruptcy court. After your petition has been accepted, your creditors will receive a notice that you have included their debt in your bankruptcy filing. An automatic stay will be placed to prohibit your creditors from making further collection attempts.
4. Attend the 341 hearing
Approximately three to six weeks after your filing, the trustee will set up a meeting, or 341 hearing, for your creditors. Your lenders are not required to attend, but you are. During this meeting, they will have the opportunity to question you or the trustee. You will then confirm whether you wish to move forward with the bankruptcy proceeding.
5. Address formal objections
Once your creditors have had the chance to question you and review your repayment plan, they may object to a discharge of a particular debt based on when or how you took on the debt. After the objection is filed, you will have an opportunity to respond to it, and both sides may present evidence as to why the debt should be discharged or not. If there are no objections, your bankruptcy petition may proceed.
6. Repay your creditors
In a Chapter 7 bankruptcy, the next step is liquidation of your assets. The trustee will pay your creditors from the proceeds before the remainder of your debt will be discharged. In a Chapter 13 bankruptcy, a judge will approve your repayment plan at a confirmation hearing. After completing the plan, the rest of your qualified debt will be cleared.
7. Undergo post-bankruptcy credit counseling
Once you have had your 341 hearing (Chapter 7) or are about to make your last debt repayment (Chapter 13), you will need to attend post-bankruptcy credit counseling. If you do not provide confirmation to the trustee that you have completed this, your debts cannot be discharged and the bankruptcy process cannot be finalized.
Can I File for Bankruptcy on My Own?
Because bankruptcy is a complex process that requires a lot of paperwork, many people choose to hire an attorney to help them stay on track. The average cost for an attorney largely depends on the complexity of your case. And while you have the option to file for bankruptcy on your own, people who work with an attorney may fare better than those who don’t.
Keep in mind that once you file for bankruptcy, there is no guarantee that your petition will be approved or that your debt will be cleared. Not only can your creditors raise objections, but the court can also prevent certain debts from being discharged. They can also revoke a discharge that has already been issued if there are reasons to believe it shouldn’t have been issued in the first place. In those situations, it could be especially helpful to have a professional guide you through the bankruptcy process.
Other Debt Relief Options
If you have so much debt that you are considering bankruptcy, most do-it-yourself debt solutions probably won’t work. But you could still have other options, including a debt consolidation loan or debt settlement.
A debt consolidation loan gives you enough money to pay off multiple debts so you are only left with a single, more manageable loan payment each month. You are essentially taking on one, new debt to pay off multiple existing debts. And while it may seem counterintuitive, the right debt consolidation loan could potentially get you a lower interest rate, simplify your payments, and help you get out of debt faster.
The catch is that you’ll need good credit to qualify, and if you’re already struggling to make your monthly payments, taking out a new loan could put you in a deeper hole. Debt consolidation is only a good option if you’re debt isn’t excessive, you have steady cash flow to cover your payments, and you have a solid plan to keep your debt in check.
If your credit is too poor to qualify for a debt consolidation loan, debt settlement offers an affordable way to resolve your debts. You can get more details about how debt settlement works here, but in general, it works by having a debt settlement company like Payment Genius negotiate with your creditors to get them to accept a lower amount on what you owe. This could help you save money and get out of debt faster.
Debt settlement does affect your credit, but there may be less of an impact than filing for bankruptcy. So if you have $7,500 or more in debt, are struggling to make your monthly payments, and considering filing for bankruptcy, it might be worth your time to get a no-obligation debt evaluation from Payment Genius to see if our program could help you.
Which Debt Solution Is Right for You?
Although bankruptcy is the right debt solution for some people, it’s not the right solution for everyone. Once your bankruptcy is discharged, there is no turning back. You cannot undo the decision, and the consequences will stay with you for a long time. It’s important to think past the immediate relief that bankruptcy could bring and weigh out all of your debt relief options to make sure you are choosing the best solution for both the short term and the long term.
To get an overview of several common debt solutions including bankruptcy, debt consolidation loans, and debt settlement, download the Payment Genius How to Manage Debt Guide. This free guide shows you how to evaluate your debt situation, find debt relief options, and choose the right solution for you.