Bankruptcy: What is the Process?

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For some people, declaring bankruptcy can provide the opportunity for them to reset their finances and give them hope for the future.

Bankruptcy

If you are interested in learning more about the ins and out of declaring bankruptcy, here is a quick primer on what you can expect during this process.

Two Types of Bankruptcy

The two most common types of bankruptcies that a person can file are Chapter 7 and Chapter 11.

With a Chapter 7 bankruptcy, your assets are sold to pay your creditors, whereas in a Chapter 11 bankruptcy, you are able to negotiate with each of your creditors to arrive at terms that satisfy your debt without you having to sell your assets.

The majority of personal bankruptcies fall under Chapter 7, because it is less expensive to file and typically results in a much faster approval. In contrast, Chapter 11 bankruptcies require creditor approval, which is often delayed due to contentious negotiations between you and the people you owe.

The process described in this article is geared toward filing Chapter 7 bankruptcy, although there are some similarities if you were to file Chapter 11 bankruptcy.

The Bankruptcy Process

According to the United States Courts website, there were more than 790,000 personal bankruptcies filed in the 12-month period ending June 30, 2016. This was more than 150,000 less cases than were filed in 2015, and continues a five-year downward trend.

But, although less people are choosing bankruptcy as an option, the fact remains that this is still a popular financial decision.

In order to file for Chapter 7 bankruptcy, you must first meet what is known as a “means test”. This test analyzes your income, expenses and debts to ascertain whether you are in the position to actually pay off your debts within a reasonable time

If you fail the means test, you may be required to file Chapter 11 bankruptcy instead of Chapter 7, but remember that some debtors (disabled veterans, military reservists) are not required to pass a means test.

Once you pass the means test, the steps in the Chapter 7 bankruptcy process are:

  • Obtain credit counseling – six months before you file for Chapter 7, the law requires that you receive credit counseling from an agency approved by the U.S. Trustee’s Office. You can obtain agency names on the Trustee Office’s website.
  • File your documents – you must then file your bankruptcy petition by filling out a number of forms that show your income, expenses, liabilities and property exemptions. After this step is completed, your are usually granted a stay against your creditors taking action against you until the bankruptcy case is approved or denied.
  • A trustee of the court reviews your paperwork and takes ownership of any property that is eligible to be sold to pay off your debts.
  • Meet your creditors – you must meet all your creditors, at which point they will ask you questions about your financial status under oath.
  • The court makes a decision on whether or not your bankruptcy filing is approved.
  • You must take a debtor’s education course – this provides you with the knowledge to prevent another financial mishap, such as the one that led to your bankruptcy.
  • Within three to six months, you will receive notice that your bankruptcy has been discharged.
  • Several weeks later, the court will close your case and the process is complete.

Get Legal Help

Filing for bankruptcy is complex and tedious, and one small mistake can cause a delay of several months. To ensure that the process is handled correctly, call the Badgley Law Group at 407-781-0420 for a free consultation.

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