Let’s walk through the basic bankruptcy process and what’s required to wipe out debts you can’t pay. I’ll keep this simple and assume that you’ve decided to file. ( At each step, links will point you to a further discussion of each issue. )
If you are undecided about whether bankruptcy is the right decision, read through my thoughts on considering bankrutpcy.
Select a bankruptcy lawyer
An experienced bankruptcy lawyer makes the bankruptcy process less stressful and more likely to get you a good result. Bankruptcy is full of non-obvious rules and unexpected results that are easy to misunderstand.
You are allowed to file without a lawyer, but it may not be wise. The more assets you have or the more involved your finances, the more benefit there is to good representation. How to pick a bankruptcy lawyer.
Gather the required information
The forms you file to start a bankruptcy case include a list of your assets, your creditors, your budget, and some recent financial history. Bankruptcy works on notice: creditors who get notice of your case are bound by the discharge. So, listing everyone is critical. Exactly how much you owe each creditor is less important. Your credit report is unlikely to list everyone you owe. More on bankruptcy schedules.
It’s vital that you include everyone you owe money to and all of your assets. You don’t get to pick and choose who you list, even if that debt isn’t dischargeable. Intentional omissions can cost you the discharge. If you skip a creditor.
Take the means test
The means test determine whether your income and expenses make you eligibile for Chapter 7. A variation of the means test provides one of the factors about how much you pay in a Chapter 13. If your debts are primarily taxes, support or business debts, the means test doesn’t apply.
Your last six months of income from all sources is the starting place. If six months of income, doubled, is less than the median income for households of your size, you pass. If your income is over median, you do the second part of the expense portion of the means test which looks at allowed deductions to determine if you have money to pay some part of your debts.
The means test is a complicated mix of capped expenses and your actual expenses, looking forward. It’s not generally something you can do yourself with any degree of reliability.
Do credit counseling
To be eligible to file bankruptcy, you must take a credit counseling session (available online or via phone) before filing from an organization approved to provide counseling by the court where you file. It’s generally inexpensive and non judgmental. The list of approved providers can be found on the website of the bankruptcy court where your case will be filed.
There’s a similar requirement for a debt education class to be taken after you file and before you get a discharge.
Review & sign your bankruptcy papers
The bankruptcy schedules require your signature under penalty of perjury that the information in the documents is true and correct to the best of your ability. It’s essential that you read over what’s in the papers not only for the truth of what’s there, but for any information that is missing. Tips for reviewing bankruptcy schedules.
Well done schedules are the basis of smooth progress to a fresh start.
File the case & get the automatic stay
When the case is filed, the court issues the automatic stay, requiring everyone to stop all forms of collection action. The court clerk assigns a case number and the name of the judge and the trustee assigned to your case. The court will mail notice of your filing to everyone named in your schedules.
Any collection action taken by a creditor after you file is void or voidable, whether or not the creditor has gotten actual notice of the filing.
Appear at the required meeting of creditors
Bankruptcy law requires that every debtor appear before the trustee assigned to the case and answer questions under oath. These days, the meeting (nicknamed the “341 meeting,” from the statute of the Bankruptcy Code) is by Zoom. It generally happens 30-45 days from filing.
Creditors are invited to come to the meeting, but seldom come. It’s an information gathering exercise; no rights are won or lost at the meeting. In most cases, each debtor’s meeting takes 3-10 minutes.
The trustee may ask for additional documents about your situation and continue the meeting for you to provide those documents. More about the first meeting of creditors.
Wait for the objection period to run
Creditors have 60 days after the 341 meeting to file an objection to the discharge of their claim against you or to object to you getting a discharge at all. Those objections require the filing of a lawsuit within the bankrutpcy case and a trial to determine whether the facts of your case support the objection. Objections to the discharge of a debt.
Objections of this sort are rare.
So after the 341 meeting, your only job is waiting.
Score the discharge
Assuming that you’ve completed the debtor education class and filed the certificate, the court will generate the discharge order shortly after the 60 period runs. The court mails a copy of the discharge to you and every creditor on your list of creditors.
The discharge makes all dischargeable debts forever non collectible against you. However, liens survive the discharge, but only as a charge against the collateral subject to the lien.
Anyone who attempts collection of a discharged debt is subject to sanction for violating the discharge.
Start fresh
The bankruptcy process is straight-forward and judgment-free. The availability of a discharge of debts is a precious feature of American law. Plan how you are going to take advantage of the discharge to make yourself more financially stable. That should include creating some savings for emergencies and a focus on retirement savings.
There’s more
Each step in the bankruptcy process above is simplified to provide a clear and concise outline. At each step, there’s lots more to say about variations, twists and complications. No two people’s financial lives are the same. Reading here can’t make you into a bankruptcy lawyer. Use the links here to expand your understanding. Then find a bankruptcy lawyer to guide you to a fresh start.
Read on
Bankruptcy is not the last resort
