With the sluggish economy in the United States over the last several years, it's an unfortunate reality that more and more individuals have to file bankruptcy. According to statistics bankruptcies are up considerably despite legislation and court action designed to keep them to a minimum. Obviously, federal bankruptcy courts attempt to discourage the practice as much as possible, but they can only do so much. There will always be businesses and individuals who are so far in debt they have no other way out.
In the United States there are six types of bankruptcy, each named according to where it's found in the federal code. The six types of bankruptcy are:
- Chapter 7 - total liquidation for individuals and businesses
- Chapter 9 - a special form of bankruptcy reserved for municipalities and public debts
- Chapter 11 - a re-organizational bankruptcy designed for businesses and some individuals
- Chapter 12 - a re-organizational bankruptcy specifically for family-owned farm or fish operations
- Chapter 13 - a re-organizational bankruptcy for individuals
- Chapter 15 - a bankruptcy plan for entities with debts outside of the United States
Step 1 - Credit Counseling
For individual bankruptcies federal law already mandates that individuals seek credit counseling before they file with the court system. In order to file a bankruptcy petition you will be required to present a certificate verifying that you have completed a certified credit counseling course. Furthermore, under certain conditions you may also be required to first attempt to use debt consolidation as a means of settling your debts.
A debt consolidation service is one that will contact creditors on your behalf and work out lower payments and/or interest rates. After all creditors have been dealt with the organization will consolidate your debts into a single, monthly payment. Successful debt consolidation services can sometimes reduce what you owe to mere pennies on the dollar. If a court determines you must attempt this first, you'll also need to present some verification that you did so and it failed to resolve your situation.
Step 2 - Consult an Attorney
The second step in filing for bankruptcy is to consult with a qualified attorney. While it is not absolutely necessary that you retain the services of an attorney to represent you in court, most federal bankruptcy judges will strongly urge you to utilize legal representation. There are several reasons behind this, not the least of which is the fact that bankruptcy law can be complicated at times. If you don't completely understand what you are doing you could get yourself into more serious trouble.
Furthermore, federal bankruptcy law requires that paperwork be filled out in a specific manner and include specific information. If you go it alone and make a mistake with your paperwork, that may be grounds for the court to reject your petition. In some jurisdictions a rejected petition will result in you being ineligible to file a new petition for a specific period of time. In some jurisdictions that could be as little as two or three months; in other jurisdictions that could be years.
Step 3 - Determine Your Chapter
The next step is for you to determine what chapter you'll be filing under. Based on your circumstances, simply do your best to determine the correct chapter. Federal law allows you to transfer into another chapter later on if it's deemed necessary. In fact, it's not at all uncommon for a court to determine that a petition is better served under a different chapter than the original filing. In such a case the judge will simply make the transfer from the bench and the petition will continue on.
If you're filing a Chapter 7 liquidation you will be submitting a list of all your qualifying assets to the court. The court will sell those assets and disperse the proceeds among your creditors. If you're filing Chapter 11 or Chapter 13 reorganization, you'll get to keep your assets as long as you produce a viable reorganization plan to the court. That plan must be approved by the court, and fulfilled by you, in order to have your bankruptcy discharged favorably.
Step 4 - Create Your Plan
If you've chosen Chapter 11 or Chapter 13 reorganization you will then need to create a plan whereby your disposable income can be used to settle your debts within 3 to 5 years. Crafting a workable plan is essential to a successful Chapter 11 or Chapter 13 bankruptcy. If the court is not convinced you will be able to adhere to the plan, it may require you to submit a new plan or transfer the bankruptcy to a Chapter 7 liquidation.
Step 5 - File Your Petition
The final step is to file your bankruptcy petition with the federal court in your jurisdiction. Since most jurisdictions are rather large they will have several court clerks located in strategic geographical areas. Your attorney will know where to find the court clerk nearest to you. With that determined all you need do is take your paperwork, along with the funds to pay for court fees, to the appropriate clerk. He or she will process your paperwork and file the petition. You'll be notified by the court when you are to appear; you'll also be given further instructions if necessary.