Temporary debt relief takes place immediately in all types of bankruptcy because the automatic stay prohibits creditors to contact you as soon as you or your bankruptcy attorney will begin the case. It also immediately stops the garnishment, writes Upsolve.
Bankruptcy under Chapter 7 of the U.S. Code for bankruptcy is a very effective tool for the removal of credit card debt, medical debt and most other unsecured debts. But you can only use it once in 8 years.
Bankruptcy under Chapter 13 is another type of bankruptcy available to consumers. The main difference between Chapter 7 and Chapter 13 is that you pay a portion of their debts by paying monthly payments to the Trustee. You pay only as much as you can, based on the verification of funds and actual income and expenditure, excluding interest rates on unsecured debt.
Such debts as student loans, child support and recent tax debts will not be eliminated if your bankruptcy court will approve. In addition, if you have any co-debtors, they are not protected your personal bankruptcy.
Depending on the credit rating of the applicant in bankruptcy in accordance with Chapter 7, it can be a bit reduced. However, most people can recover their credit score in less than a year. In the United States in 96% of all cases of consumer bankruptcy under Chapter 7 individual can keep all of their property even after filing for bankruptcy.
1. Collect documents
Before you begin, you need to collect all financial documents in order to understand the current state of your finances.
First, you must obtain a copy of your credit report at Experian, TransUnion or Equifax to find out how much you owe. You can get your credit report from all three sources once per year.
Some debts cannot be mentioned in your credit report, for example, medical bills, personal loans or tax debts. Make a list of all outstanding debts, because you will need to list all of them in your bankruptcy forms.
In addition to credit report you will need:
tax returns for the last 2 years;
paid receipts or other evidence of your income for the last 6 months;
the last Bank statement of account;
recent statements from retirement or brokerage account;
assessment of any property that you own;
copy of vehicle registration;
any other documents concerning your assets, debts or income.
The presence of these documents will help you to get accurate picture of your finances.
2. Get credit advice
An important first step in the process of bankruptcy and credit counseling. Everyone who submits a bankruptcy petition, is required to undergo credit counseling approved by the Department of justice. These courses give you an idea of whether you need to file for bankruptcy or you could improve the situation through an informal repayment plan.
You give the Agency credit consultation your income and expenses. Together, you consider variants of repayment of the debt, such as debt consolidation or debt settlement. In many cases this is just to confirm that you have no other solutions to the debt problem other than bankruptcy. But this advice is still important.
The course takes at least one hour and can be completed via the Internet or by phone. The cost varies from $10 to $50, depending on the Agency. But if your family income is less than 150% of the Federal poverty line, you will not be able to pay. After completing the course you will receive a certificate. Keep it — you will need to provide a copy of this certificate to the court when you submit your forms for bankruptcy on the fifth step.
3. Fill out the necessary forms
This is the most time-consuming step. The necessary forms for bankruptcy include 23 separate document, totaling about 70 pages. They ask you about what you’re doing, spend what you own and what you owe.
You can download all forms for free and fill them either on the computer or printed and filled out manually. This is definitely the most important step in the process, so make sure you take your time and answer all questions completely and truthfully, based on the provided instructions.
If you hire a lawyer, he will fill the form for you based on information you provide. If you can’t afford to hire a lawyer, but cannot fill out forms, check if you are eligible to use the free service for bankruptcy Upsolve, or make an appointment with a representative of the legal aid in your area.
4. Pay the registration fee
To apply for bankruptcy under Chapter 7 usually requires a fee in the amount of $335, which must be submitted to the court, usually in the form of cash receipt. Some courts accept cash, but not all.
If you now have no money to pay the fee for filing an application, you can fill out a form with the request to pay fee in installments. You can ask to split the fee of $335 up to 4 payments within 120 days of the date of filing.
If payment in installments is impossible, you may file another form for cancellation of payment. To meet the criteria, your total household income must be below 150% of the Federal poverty line. The court will decide whether you receive a waiver of the fee after submitting the application. If your application is rejected, the court usually orders you to pay the fee in installments.
After you have prepared the forms, you will need to print them out for court. Choose one-sided printing. The court will not accept documents printed on both sides of the leaves.
You will also need to sign the forms after they are printed.
Most courts in bankruptcy cases only require one copy of the application (the signed original), but some courts, like the court in the bankruptcy cases in Manhattan, require 4 copies. So call your local court for bankruptcy to know how many copies you will need to bring.
6. Go to court and submit forms
As soon as you walk in the door of your local courthouse, you will meet the guards who will ask you to go through a metal detector. After passing through security, you go to the clerk’s office and say: “I would like to file for bankruptcy under Chapter 7”. You will give the clerk the forms of bankruptcy along with your fee in the amount of $335. Or, if you are applying for exemption from the payment of fees or installments, instead of money you will give him the waiver from payment of the duty or the form of installment payment.
The clerk will take the forms and ask you to take a seat in the waiting room. The process of reviewing your case will not take the clerk a long time — about 15 minutes. During this time your forms scan and upload to the registration system in court.
As soon as I’m done processing your forms, the clerk will call you to the front Desk and give:
the number of your bankruptcy;
the name of your bankruptcy Trustee in bankruptcy;
the date, time and place of your meeting with your Manager (it’s called “meeting of creditors” or “341 meeting”).
So, the case you filed. Congratulations, you’ve made a very important step! Now your creditor debt is prohibited to suspend the procedure to contact you for debt collection, to collect your wages or seize the property. This will last until the end of your bankruptcy, and at this point most, if not all, of your debts will be cancelled.
But you’re not finished — there are other steps that need to be taken.
7. Send the documents to my business Manager
The bankruptcy Trustee is an official appointed by the court to monitor your case. Note to e-mail you get from him after filing. The Manager will send you a letter asking you to send them certain financial documents such as tax returns, receipts and Bank statements. If you do not send the requested documents by following the instructions given in the letter, you will not be able to repay your debts.
8. Take a course in bankruptcy No. 2
As soon as possible after filing the bankruptcy you must pass a second required course. It’s called “training Course debtors” or “Financial management” and similar rate credit counseling. But it is designed to teach you to make the right financial decisions, so you do not have to seek relief in bankruptcy in the future.
The course can be completed online or by phone and takes at least 2 hours. The cost of the course varies from $10 to $50, but the fee can be waived if your family income is below 150% of the Federal poverty level.
If you do not pass the course, you are zero debt. So don’t forget to complete the course as quickly as possible after filing.
9. Visit the 341 meeting
Finally, you need to attend 341 meeting. Its location depends on where you have filed for bankruptcy.
Typically, the 341 meeting occurs approximately one month after filing. The main goal is to make sure that you are not hiding expensive assets that must be divided amongst the creditors. If your documents have been issued correctly, you should have no problems with answering the questions. Most meetings last only about 5 minutes. Creditors are allowed to attend, although they almost never do.
Important note: you must bring your ID and social security card. If you do not bring them, the Manager will not be able to confirm your identity, and the meeting will not proceed. You must also bring a copy of your bankruptcy forms and pay stubs for 60 days, your recent Bank statement and any other documents asked from your Manager.
10. Optional: if the case involved a car with debt
There is another step in the bankruptcy process, if you have a car with outstanding debts. If you want to transfer the vehicle to the creditor and to repay the debt, the creditor will sue in bankruptcy a petition for the issuance of a permit for repeat purchase of the car.
Alternatively, you can leave the car, Reaffirming the debt and continuing to pay on it. In this case, your lender typically sends you a confirmation agreement that must be signed and returned within 45 days after your 341 meeting. Then the lender submits the agreement to the court for approval. If the judge approves the document, you will still be responsible for paying the loan balance.
Finally, you can also choose the option to purchase the vehicle from the creditor for the current value. This payment should be made in a lump sum, usually obtained from the lender, such as 722redemption.com. If you choose foreclosure, you will need to file a petition for bankruptcy.