Although personal bankruptcy should always be a last resort, it's not hard to file if you find yourself in that position. All it takes is a little knowledge and understanding of the law. Below is a step-by-step process which you can follow to make filing a personal bankruptcy petition as easy as possible. Just be aware that doing so will have negative consequences you'll have to deal with for years to come. Remember that personal bankruptcy, while it may relieve you of some of your dischargeable debts, will not wipe your slate clean and let you start over as though nothing happened.
In a nutshell, the basic steps for filing personal bankruptcy are:
- seek out debt consolidation and credit counseling services.
- consult with an attorney.
- assess your situation and fill out the paperwork.
- file your petition with the court.
Debt Consolidation and Credit Counseling
While the Constitution and federal law provide for personal and business bankruptcies, courts will try to discourage them at any cost. Therefore, before you can even file a petition with the court you must seek out debt consolidation services and credit counseling. A debt consolidation service attempts to negotiate with all of your creditors and work out payment deals that are sometimes pennies on the dollar. When deals have been reached with all of your creditors your monthly payments are combined into one single payment which is usually lower than you would have paid in total prior to the consolidation.
Consumer credit counseling is mandatory by federal law before you can file for bankruptcy. You must complete a counseling course and provide certification along with your filing. If you do not have proof of credit counseling the court will not even accept your paperwork. You must also be sure that the agency from which you seek credit counseling is properly accredited. Fortunately, many of these counseling services are either free or very affordable.
Consult with an Attorney
Believe it or not, you do have the option of representing yourself in bankruptcy court. However, courts will attempt to dissuade you due to the complexity of federal bankruptcy law and differing state regulations. Whether or not you use an attorney in a court proceeding, you should at least consult one before deciding how to proceed with your petition. An experienced bankruptcy attorney will be able to help you make the choice of which chapter to file under and how to organize your paperwork.
At the end of the day it is always advisable that you use an attorney to represent you regardless of how comfortable you are with the process. An attorney will not be anxious or nervous standing before a judge, he'll be able to answer questions forthrightly and accurately, and he'll be able to apply the law to your case as it should be. Using an attorney will get you in and out of court faster and increase your chances of a successful petition.
Assess the Situation and Fill out Paperwork
Depending on which chapter you decide to fill out, there will be certain forms you'll need to complete and submit along with your petition. If you're filing a Chapter 7 liquidation you'll need to submit to the court a full and complete list of all qualifying assets.
For explanation purposes, rather than trying to list all the potential qualifying assets, it's easier for us to list non-qualifying assets. These include your primary residence, a vehicle you use to go to and from work, and any joint accounts, securities, and business assets you own in conjunction with other individuals not involved in the bankruptcy. Pretty much everything else is in play.
If you're filing a reorganization petition under Chapter 13, none of your assets will be at risk. But you will have to develop a plan by which you intend to repay your debts within 3 to 5 years. You will have to submit that plan, in writing, for the court's approval. If the judge determines your plan to be unviable he will either order a new plan to be developed or force you into a Chapter 7 filing.
In reference to an attorney, one of the reasons it's recommended you utilize legal services is because the paperwork can be complicated. If there's even a single mistake, that is sufficient cause for a court to dismiss your case. Not that they would, but they can. You need to make sure that all of your paperwork is done properly every step of the way. A bankruptcy attorney is the best way to ensure this gets done.
File Your Petition
The last step is to file your petition with a federal circuit court. Every state has at least one circuit court split into several separate districts. In each district there will be several court clerks geographically located in strategic areas. If you're using an attorney he will know where the nearest court clerk is. If you are representing yourself, all you need to do is look on the Internet, or in your phone book, for contact information about your state's circuit court. Contact them for information about your regional court clerk.
When you go down to the court clerk's office be sure to have all of your paperwork, your certifications for credit counseling and debt consolidation services, and the funds to pay court costs. In most cases the court will not accept a personal check for these funds, nor will they accept cash. They will need to be in the form of a money order, certified check, or cashier's check. It is possible that some district courts will accept credit cards, but that's not likely for bankruptcy petition.