Should I File for Bankruptcy? Know Your Options First
How to File Bankruptcy: Research is Key
If you need to learn how to file bankruptcy, you should begin with a good understanding of your other options. Declaring personal bankruptcy can be the right move if you're struggling financially, but it may not be the best path for you.
In fact, you should avoid bankruptcy if possible—debt consolidation is a less extreme course of action, and has helped many people overcome their debts. However, if a repayment plan or consolidation loan cannot be worked out, consider which type of bankruptcy will be most applicable, and least damaging, to your situation before you begin the filing process.
What to Know About Bankruptcy Law
Chapter 13 bankruptcy is essentially an individual debt adjustment, designed for those with a regular income who just need more time to pay off their debts. Because it's basically a legal order for your creditors to extend your payment deadlines for anywhere from three to five years, it's a fairly mild form of bankruptcy that is preferable to chapter 7 or chapter 11 bankruptcy.
Your creditors will have to agree on the terms of the repayment plan, and if they object to the deal you may have to convert the case to a chapter 7 bankruptcy.
Chapter 7 bankruptcy involves liquidation of all assets—that is, your property will be sold and the proceeds will be used to pay the debts you owe to your creditors. Instead of organizing a repayment plan as is the case with chapter 13, you'll sacrifice your money and your belongings (often houses, cars and other large pieces of property) for a fresh start. Chapter 11 bankruptcy is largely used by corporations and businesses.
How to Get Started
Bankruptcy should be a last resort. Be sure that there are no other options available to you, since bankruptcy will remain on your credit file for up to 10 years. Regardless of the specific chapter you plan to file, the law requires you to first get credit counseling from a government-approved organization, which is intended to help you explore your options before opting for bankruptcy.
Credit counseling needs to be done within 180 days of filing for bankruptcy, and then you'll need to complete a debtor education course after you file. Your first step is to choose a credit counselor that is approved by your judicial district.
Bankruptcy can be complicated, and while you can go it alone, it's generally a good idea to hire an experienced lawyer who can provide helpful bankruptcy information. Beware of large law firms, though—you may be connected with a paralegal instead of an expert lawyer who can ask the right questions, answer all of yours and commit their full attention to your case.
This lawyer will then be able to deal with your creditors on your behalf, and those creditors will no longer be allowed to contact you directly about the money you owe. Your lawyer will also be able to help you fill out the necessary bankruptcy forms, walk you through the meeting of creditors and help argue your case to the trustee.
