A jar of pennies being dumped out on a table

The Process of Filing for Bankruptcy in the USA

Advice for Declaring Bankruptcy

Individuals who are struggling to pay their bills may wish to file for protection from their creditors. This may lead to assets being liquidated to pay some or all of a balance owed. It may also result in debts being reorganized and repaid over a period of three or five years. Let’s take a look at what you should know about declaring bankruptcy, and how to complete the process of doing so.

Why Do People File For Bankruptcy?

Individuals may decide to file for bankruptcy because they have experienced a job loss, or an unexpected expense that they cannot pay in a timely manner. In the United States, medical debts are the most common reason why people take this step. Bankruptcy may also be helpful in eliminating a judgment or a second mortgage. Business owners may need to file for personal bankruptcy if their companies go under and they cannot repay loans used to fund it.

How Do You File for Bankruptcy?

The first step in filing for bankruptcy is to attend a credit counseling session. This is true whether you want to file for Chapter 7 or Chapter 13 bankruptcy. If you can’t find an approved class in your area, it may be possible to have this requirement waived. Generally, it must be taken no more than 180 days prior to filing.

Once you have taken the class, the next step is to file the required bankruptcy schedules. These schedules will list your assets, debts and sources of income. This information will help the court decide what type of bankruptcy protection that you are eligible for. Your bankruptcy lawyer will also be able to provide insight into what type of protection that you may be allowed to seek.

The last step in the process is to work with a trustee to liquidate assets or propose a repayment plan. Your trustee, a creditor, or a bankruptcy judge all have the right to oppose your plan or move to dismiss your case at any time. It is your responsibility to work with all interested parties to obtain a reasonable outcome for as long as the case is open.

Discharged Debts

If you wonder why people file for bankruptcy, it is because debts can be discharged in a matter of weeks in a Chapter 7 case. In a Chapter 13 case, assets such as a car or home can be retained as long as an individual makes plan payments. Once the repayment period is over, any remaining debt balances can be discharged, and in some cases, this means no longer being responsible for paying back a secured loan.

Filing for bankruptcy can have significant consequences for your credit score and overall financial situation. Therefore, it is important that you don’t make the decision to file without consulting with a bankruptcy lawyer. Furthermore, it can be a good idea to speak with a credit counselor about other options that you may have to obtain timely debt relief.