How to File for Bankruptcy
If your debts have gotten so high that you can’t afford to pay them off, bankruptcy might be for you. But you’ll want to file for bankruptcy the right way so that your creditors get a fair share of what you owe and you avoid long-term financial and legal consequences.
If you’re suffering from debt problems, you may be considering filing for bankruptcy. But before you do, you should know a few things about how the process works.
In Chapter 7 proceedings, a trustee takes over your property and liquidates it to pay off creditors. In extreme cases, the trustee could take and sell everything you own to satisfy debts.
This is a harsh, but effective, approach to getting consumers out of serious debt. But it isn’t always necessary, and the impetus behind bankruptcy laws is largely to help people who need it get out of the cycle of crushing debt.
In many cases, you can keep your house and certain personal possessions. You can also keep most of your income (if you pass the means test).
Chapter 13 is a good option for people who want to keep their homes but cannot afford to pay off unsecured debt. It allows you to create a plan to repay some or all of your debts over three to five years, depending on your income.
If you’re behind on your mortgage or car payments, filing for bankruptcy stops foreclosure proceedings and lets you catch up over time. But you may still lose your property if you don’t make up past due amounts in your repayment plan or if the court rules against you.
A bankruptcy attorney can help you develop a plan and explain how the courts prioritize different types of creditors. For example, your car loan company may get priority status over your credit card company if you have significant equity in the vehicle.
You also can ask the court for a hardship discharge. This could be because of a job loss, illness or other serious circumstances. But the court usually won’t do this unless you can prove that you’re making good efforts to repay your non-priority unsecured debts.
Credit counseling can help you learn about your debt options and decide whether bankruptcy is right for you. The process involves meeting with a credit counselor, who will thoroughly review your financial situation and provide you with an evaluation of your debts.
During the session, you’ll need to provide your counselor with basic financial
information, such as pay stubs, monthly expenses, and recent credit card statements. This will help the counselor understand your situation and recommend a plan to help you get out of debt.
A credit counselor will also be able to review your credit report and discuss any negative marks that may be holding you back. This can be helpful in improving your credit score and can help you make smarter use of your credit cards.
A credit counselor can also offer alternatives to filing for bankruptcy, including negotiating with creditors for reduced rates and fees or starting a debt management plan. These plans typically reduce interest rates, and the counselor can help you set up a plan to pay off your debts within 3-5 years.
Whether you decide to file for chapter 7 or chapter 13 bankruptcy, you will need to provide the court with a thorough report of your financial situation. A missing document or a misstatement can cause your case to be delayed or tossed out by the courts.
You will also need to provide the court with documentation regarding your income. This includes pay stubs, old tax returns, and other financial documents.
If you have any property that is generating untaxed disability payments, annuity payments, or other sources of income that are not reflected in your tax returns, you will need to prove these sources by submitting their records and/or an explanatory letter from the IRS.
You will also need to provide recent bank and retirement account statements. Depending on the trustee, you may also need to provide recent loan and mortgage statements to show current or past due amounts.
Even with these suggestions, a bankruptcy attorney in Harrisburg, PA can better assist you with all law related things to ensure you are doing things right.