A person who cannot pay back his or her debts should consider filing for bankruptcy. Bankruptcy proceedings are never pleasant but they can alleviate one from debts that cannot be repaid. However, before learning about how to file for bankruptcy one should make sure that there are no other ways of repaying a debt. Bankruptcy will have a large impact on one's credit ratings and ability to obtain a loan of any kind. A person who needs to declare him or herself bankrupt should follow the simple steps listed below.
Get Credit Counseling
In most states, one is required by law to obtain credit counseling six months before filing for bankruptcy. Make sure the counselor is an approved, certified provider who can provide a certificate of credit counseling once the course is finished. One will need to show this certificate and file a statement of compliance when filing the case.
Hire a Lawyer
The first step in how to file for bankruptcy is to hire a lawyer. While a person can represent him or herself, bankruptcy proceedings are complicated and one mistake can have serious negative consequences. A good lawyer will know what papers to file and what chapter of bankruptcy to file under.
Many individuals do not hire a lawyer because they cannot afford to pay the legal fees. However, it is possible to obtain free legal aid from a variety of sources. Legal Aid, a pro bono lawyer's association or a legal clinic can all represent a person free of charge. If one files for Chapter 13 bankruptcy, which is the most common type of bankruptcy, one can pay the lawyer in installments instead of all at once.
Stop Using Credit Cards
Once a person has filed for bankruptcy, he or she should stop using all credit cards. A person who buys something on credit while declaring him or herself bankrupt will be held accountable in a court of law. Either the debt will not be dismissed, meaning that the person will have to pay it, or the entire case will be dismissed, leaving one in dire financial straits.
Meet the Creditors
Once the case has been filed, one will be contacted about a meeting of creditors. This meeting is required by law. It should be attended by the person who filed the case, his or her lawyer, the creditors and the trustee handling the case. A good lawyer will prepare a client for this meeting beforehand. A person who is declaring him or herself to be bankrupt should make sure that all the assets are listed and that the papers filed are completely accurate. The creditor meeting will verify the accuracy of one's papers.
If a person has filed for Chapter Seven bankruptcy, the trustee will look over a person's assets and determine which ones can be kept and which are to be sold. Any assets that are declared exempt will be kept by the person filing the case and the creditors will not be able to touch them. If a person has filed under Chapter Thirteen, the trustee will lay out a three to five year plan for paying off the debt. While a person's entire debt does not have to be paid back under Chapter Thirteen, a good portion of the debt must still be repaid.
It is also important to realize that there are some debts that must be repaid even if a person's case is successful and other debts are discharged. Student loans and taxes will not be discharged and must be repaid even after a person has declared him or herself to be bankrupt. Other types of debt may also be exempt from discharge; one should go over this information with a lawyer before filing the case.
After the meeting has come to a close, creditors will have a sixty daytime period in which to file objections. Creditors can object to part or all of the debt being discharged. If one or more creditors file objections to the case, then the case will take a lot longer to process. However, if creditors do not file objections, then one will be declared bankrupt. If one filed a Chapter Seven case, he or she will receive a certificate of discharge after the sixtieth day. A person who has filed under Chapter Thirteen will only receive this certificate sixty days after his or her final creditor payment has been made.
A person who cannot pay back his or her debts should learn how to file for bankruptcy. With the aid of an attorney, one can get many, if not most, of his or her debts discharged. While bankruptcy is never pleasant and it does leave a mark on one's credit report, it is in fact a good thing in that it helps one to clear old debts and start afresh.