Bankruptcy law is set out by the Federal Government but each State can also set some laws to modify the Federal ones. You should educate yourself about the law in your state and the steps you need to take to file.
The Necessary Steps to File Bankruptcy
You (and your attorney if you hire one) need to decide whether a Chapter 7 Bankruptcy (liquidation) or a Chapter 13 Bankruptcy (reorganizing and paying portions of your debt) would be the best for your situation.
Yet you also may not have a choice on which type as you have to pass the Means Test in order to file Chapter 7 (under the new bankruptcy laws). The action you would undergo for a bankruptcy filing are similar in both.
The initial action would involve a conference with an attorney regarding rights, and procedures (although this wouldn’t occur if you file bankruptcy without an attorney).
Next is document preparation. The Petition in Bankruptcy is quite comprehensive and is the primary document for the bankruptcy filing. The documents can easily involve hundreds of pages.
Once the documents are complete, then they must be filed with the Bankruptcy Division of the U. S. District Court. At this time, you (or your attorney on your behalf) would pay the required filing fee, usually just under $300 if you didn’t get a waiver of the filing fee.
Once you file the documents, and the Court approves them, your creditors are then put on notice by the Court advising of your filing, and when your first appearance will be held.
This is called a “Meeting of Creditors.” Any of your creditors, who wish to question you about your debt, assets, etc., can appear at this meeting. If they wish to object to your bankruptcy filing, they may do it then, as well. In most instances, this is the only meeting that will occur for the majority of debtors.
We recommend you find a reputable attorney in your area, to file bankruptcy because the Court is very strict, and an error with the forms could cause them to be returned to be fixed or redone. You would then have to revise the documents, and resubmit, hoping they would be accepted.
Hiring a bankruptcy attorney gives you representation during the actual court proceedings, and they will work in your best interests and help protect your assets.
Bankruptcy Law Liquidation Exemptions
U. S. Bankruptcy Law allows for some generous exemptions for liquidation of property including the ability to keep your house, some clothing, personal clothing, household furniture, a vehicle, etc.
There are specific documents called “Schedules” in the Bankruptcy Petition. List the items you want to exempt from the bankruptcy there along with their estimated value.
When I realized that I could no longer pay my mortgage, as my medical bills exhausted my bank account and my husband got laid off, I contacted my bank to see if a short sale would be approved. My bank was totally uncooperative so I contacted a bankruptcy lawyer.
I was relieved to find out how easy it was. First I had to gather every bill that I had and my mortgage documents and submit them to the lawyer.
My husband and I had to complete multiple computer programs teaching us how to manage our money. This was very tedious. I resented this since until that time I had never been late on a single payment of anything and had a great credit rating. In fact at that point we were only one month past due.
We stopped paying all of our bills and proceeded to look for a place to rent. We wanted to find a place before our credit was damaged even though our lawyer told us we could stay in our house for free for up to 2 years. That was a hard decision but we couldn’t bear being turned down for a place because of credit and it was painful to stay in the house anyway knowing we were losing it. We also felt very uncomfortable around our neighbors. We found a place, moved and waited for the hearing.
The hearing room was full of people and we faced the judge for about 5 minutes. It was then over and we got on with our lives. Not a single creditor called us since we were not very late on any payments.
Would I do it again? That is not a fair question. We filed for bankruptcy because we had no choice in the matter. Hopefully we would never have to do it again.
My husband went from a 10 year career job that paid $70,000 a year to unemployment at $500.00 a week. He now makes $11.00 per hour. We didn’t have high credit card balances or an expensive car payment then and we don’t have them now. We lived within our means in a house we could afford then as we do now. We just could not foresee unemployment and surgery for my husband and 2 months out on disability for me at the time.
Since we exhausted our bank account (we both had health insurance) for medical bills there was not time to try to work with the bank to see if we could sell the property and avoid a foreclosure to save our credit.
We continued to try to work with the bank for months after we moved to negotiate a short sale as we waited for the hearing but the bank wanted no part of it. They just continued to send us bills.
In light of the crisis we face in this country today in both the banking industry and home market that is no surprise. This event occurred in 2009 which was the beginning of the crash.
Posted by: Darlene
A trustee is assigned to the debtor, and oversees asset liquidation. They also review the bankruptcy documents, and are there as a representative of creditor rights.
One of the options you have, as a debtor, is to confirm a debt you filed on and basically keep the debt. This means that you sign a legal document agreeing to continue payments on the debt once the bankruptcy is closed.
Some instances where you may want to reaffirm a debt include an outstanding mortgage if you claimed exemption on your home.
Keep in mind, you will need to reaffirm a debt (in most cases) if you claimed exemption on property that has a security interest reserved (such as mortgage on your house, loan payments on your car, etc.) in order for the exemption to be approved by the Court.
State Amendments To Bankruptcy Law
Homestead exemptions are allowed in some states so you won’t lose your home, others limit the homestead exemption, and still others won’t allow homestead exemptions at all.
Many individual states have included amendments to the Federal Bankruptcy Law which change the way a bankruptcy would work in that state. It is extremely important that you check with your state as to what amendments are in effect prior to filing bankruptcy.
It’s so important to understand the laws relating to your state before you decide to file bankruptcy. A qualified bankruptcy attorney can easily tell you which exemptions apply in your state, or you can wade through the exemptions, in legaleze, via the Bankruptcy Districts Map that offers access to State Revisions to Bankruptcy Laws for the United States District Court.
What you need to know about declaring personal bankruptcy.
What happens to your credit score after bankruptcy?
Go to the Bankruptcy Facts article list.
Top of Bankruptcy Law