by Z. Mae Hartman
The primary goal of bankruptcy is to obtain relief from burdensome debt and provide a fresh start to honest people. This legal proceeding is designed to eliminate personal debt and stop harassment from creditors.
Perhaps you have lost your job and you can no longer afford your car and mortgage payments. Credit card companies are threatening you with lawsuits. Debt collectors are pursuing you endlessly, and your finances are a disaster. If you are facing any of these situations, you may want to consider filing for bankruptcy.
Consumer bankruptcies are mainly covered under two parts of the U.S. Bankruptcy Code: Chapter 7 and Chapter 13. Chapter 7 (Liquidation) enables you to eliminate most of your debts but may require you to forfeit some of your assets for distribution to creditors if they do not fall under an exemption. Chapter 13 (Reorganization) enables you to pay off all or a portion of your debts during a three to five year time frame.
To begin the process of filing for bankruptcy, you should first contact a reputable bankruptcy attorney. Once you have found an attorney, you will need to start collecting all of your financial paperwork. This should include credit card statements, collection notices, car and mortgage loans, bank statements, tax returns and your pay stubs from the last six months.
Your bankruptcy paperwork is also known as a petition. You must list everything you own and everything you owe. It is a federal crime to lie on your petition, so be forthright when listing your assets and debts.
You will need to decide what you intend to do regarding your secured debts such as your home and car. If you cannot afford to make the payments on your secured debts you may choose to surrender them in your petition.
Not all your debts will be discharged, such as certain taxes, alimony, student loans, child support and personal injury judgments. You are responsible for all new debts incurred after filing just as normal.
Your income over the last six months will be averaged, and the amount of your income will determine which chapter you will be eligible to file under. This includes all bonuses and commissions.
Also, the type and amount of your debts will determine if you should file under Chapter 7 or Chapter 13. If you are behind on your secured debts, like your mortgage, you may choose to file under Chapter 13 because this chapter is designed to help you catch up on those arrearages.
After your paperwork is completed, you will review and sign the petition with your attorney verifying that everything in it is true and correct.The last step prior to filing your petition is the credit counseling class. The class can be taken either online or on the telephone. The class takes about an hour, and once you receive your certificate of completion, your petition will be filed and your creditors will be notified of your bankruptcy.
The "automatic stay" takes effect immediately upon the filing of your petition. Basically the "automatic stay" forces all creditors to stop any collection efforts when they receive notice of the filing. This means all those harassing phone calls will stop.About 30 days after your petition is filed, you and your attorney will attend a Meeting of the Creditors.
A Trustee was assigned to your case when your petition was filed. The Trustee will review your petition and conduct the meeting. He or she will ask several questions to determine if you were candid in listing your debts and assets.
Prior to receiving your discharge, you will have to take a financial management course. Again this course can be taken either online or by telephone. You will receive another certificate of completion which must be filed with the Bankruptcy Court.
If you have filed a Chapter 7, and the Trustee determines that you have no assets to distribute to your creditors, you will receive a discharge from the bankruptcy judge in about 60 days. In a Chapter 13 case, you will receive your discharge once you have completed your repayment plan (3-5 years).
It takes time to rebuild credit, but bankruptcy can help you start the financial healing process. You can now regain control of your finances. You should continue to pay on any debts not discharged in your bankruptcy like a mortgage, car loans, or student loans.
Another good way to rebuild credit is to apply for a secured credit card. Your credit score will improve as you prove you are capable of paying on time. Bankruptcy filings are public just like all court records and will remain on your credit report for ten years.
Bankruptcy should not be seen as a personal failure but an avenue you can use to rebuild your credit rather quickly after your discharge. Mae Hartman is an attorney in Canton, where her practice area is consumer bankruptcy. She is a graduate of Nova Southeastern University Shepard Broad Law Center, Fort Lauderdale, Florida.
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