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How to File for Bankruptcy: A Comprehensive Guide to Chapter 7 and Chapter 13

Filing for bankruptcy is a significant financial decision that can provide relief from overwhelming debt, but it also comes with long-term consequences.

Understanding the process, the differences between Chapter 7 and Chapter 13 bankruptcy, and the importance of working with a qualified bankruptcy attorney is crucial to navigating this complex legal procedure.

This guide will walk you through the steps of filing for bankruptcy, explain the key differences between the two most common types, and highlight why professional legal assistance is essential.

Understanding Bankruptcy: Chapter 7 vs. Chapter 13

Bankruptcy is a legal process designed to help individuals or businesses eliminate or repay their debts under the protection of the federal bankruptcy court.

The two most common types of bankruptcy for individuals are Chapter 7 and Chapter 13.

• Chapter 7 Bankruptcy: Often referred to as “liquidation bankruptcy,” Chapter 7 allows you to discharge most unsecured debts, such as credit card debt, medical bills, and personal loans. In exchange, a bankruptcy trustee may sell some of your non-exempt assets to repay creditors. However, many filers can keep essential property through exemptions.
• Chapter 13 Bankruptcy: Known as “reorganization bankruptcy,” Chapter 13 involves creating a repayment plan to pay back all or a portion of your debts over three to five years. This option is ideal for individuals with a steady income who want to keep their assets, such as a home or car, while catching up on missed payments.

Step-by-Step Guide to Filing for Bankruptcy

Whether you choose Chapter 7 or Chapter 13, the bankruptcy process involves several key steps. Here’s a detailed breakdown:

1. Assess Your Financial Situation

Before filing for bankruptcy, evaluate your financial circumstances. Gather all relevant documents, including:

• A list of your debts (secured and unsecured).
• A list of your assets (property, vehicles, bank accounts, etc.).
• Your income and expense statements.
• Tax returns for the past two years.

This information will help you determine whether Chapter 7 or Chapter 13 is the better option for your situation.

2. Complete Credit Counseling

Federal law requires all bankruptcy filers to complete a credit counseling course from an approved agency within 180 days before filing. The course typically takes about an hour and can be completed online or over the phone. Once completed, you’ll receive a certificate of completion, which you must file with your bankruptcy paperwork.

3. Hire a Qualified Bankruptcy Attorney

While it’s possible to file for bankruptcy without an attorney (pro se), doing so is not recommended. Bankruptcy laws are complex, and mistakes can lead to your case being dismissed or losing valuable assets. A qualified bankruptcy attorney will:

• Help you determine the best type of bankruptcy for your situation.
• Ensure all paperwork is completed accurately and filed on time.
• Represent you in court and negotiate with creditors on your behalf.
• Advise you on how to protect your assets through exemptions.

4. Prepare and File Your Bankruptcy Petition

Your bankruptcy petition is the formal document that initiates the bankruptcy process. It includes:

• Schedules of Assets and Liabilities: A detailed list of your property, debts, income, and expenses.
• Statement of Financial Affairs: Information about your financial history, including recent transactions and lawsuits.
• Means Test (Chapter 7): A calculation to determine whether your income is low enough to qualify for Chapter 7. If your income exceeds the median for your state, you may need to file for Chapter 13 instead.

Your attorney will help you complete these forms accurately and file them with the bankruptcy court in your jurisdiction. Once filed, an automatic stay goes into effect, which stops most creditors from pursuing collection actions against you.

5. Attend the 341 Meeting of Creditors

About 20 to 40 days after filing, you’ll attend a mandatory meeting with the bankruptcy trustee and any creditors who choose to attend. This meeting, known as the 341 meeting, allows the trustee to verify the information in your petition and ask questions about your financial situation. Creditors may also attend to challenge the discharge of certain debts.

6. Complete a Debtor Education Course

Before receiving a discharge, you must complete a second course on personal financial management. This course focuses on budgeting and money management skills to help you avoid future financial problems. Like the credit counseling course, it must be completed through an approved provider.

7. Receive Your Discharge

• Chapter 7: If no objections are raised, you’ll typically receive a discharge of your eligible debts about 60 to 90 days after the 341 meeting. This discharge eliminates your legal obligation to repay most unsecured debts.
• Chapter 13: You’ll receive a discharge after completing your repayment plan, which lasts three to five years. The discharge covers any remaining unsecured debts that weren’t fully repaid through the plan.

Key Differences Between Chapter 7 and Chapter 13

While the overall process is similar, there are important distinctions between Chapter 7 and Chapter 13:

1. Eligibility:
   • Chapter 7: You must pass the means test, which compares your income to the median income in your state.
   • Chapter 13: You must have a regular income and your secured and unsecured debts must fall below certain limits.
2. Duration:
   • Chapter 7: Typically lasts three to six months.
   • Chapter 13: Lasts three to five years, depending on your repayment plan.
3. Asset Protection:
   • Chapter 7: Non-exempt assets may be sold to repay creditors.
   • Chapter 13: You can keep all your assets as long as you adhere to the repayment plan.
4. Debt Discharge:
   • Chapter 7: Most unsecured debts are discharged quickly.
   • Chapter 13: Debts are repaid over time, and any remaining unsecured debts may be discharged at the end of the plan.

The Importance of a Qualified Bankruptcy Attorney

Filing for bankruptcy without an attorney is extremely risky.

The process involves intricate legal and financial details, and even minor errors can jeopardize your entire case. A qualified bankruptcy attorney provides invaluable assistance by:

1. Ensuring Compliance with Bankruptcy Laws: Bankruptcy laws vary by state and are subject to frequent changes. An attorney stays up-to-date on these laws and ensures your case complies with all requirements.
2. Maximizing Exemptions: Exemptions allow you to protect certain assets from liquidation. An attorney will help you apply the appropriate exemptions to safeguard as much property as possible.
3. Navigating Complex Cases: If your case involves unique circumstances, such as owning a business or dealing with tax debts, an attorney can provide tailored solutions.
4. Representing You in Court: While most bankruptcy cases don’t require a court appearance, having an attorney ensures you’re prepared if any issues arise.
5. Providing Peace of Mind: Bankruptcy is a stressful process. An attorney handles the legal complexities, allowing you to focus on rebuilding your financial future.

Conclusion

Filing for bankruptcy is a powerful tool for regaining control of your finances, but it requires careful planning and execution.

Whether you choose Chapter 7 or Chapter 13, understanding the steps involved and working with a qualified bankruptcy attorney can make the process smoother and more successful.

By taking the time to assess your financial situation, complete the required courses, and file the necessary paperwork, you can achieve a fresh start and move toward a more stable financial future.

Remember, bankruptcy is not the end—it’s an opportunity to rebuild and thrive.

Hiring an Experienced Bankruptcy Lawyer

It’s important to hire an experienced bankruptcy attorney as one of the steps to take when you’re facing bankruptcy and you need solid guidance and representation.

This is because there are many different types of bankruptcy. Only an experienced lawyer will know which one would work best for your specific situation and your particular financial decisions.

It might seem like it makes sense to do this yourself. But most people don’t have the time or patience to understand all of the intricate details involved in bankruptcy.

That means they make mistakes by not choosing the right type, or by not filling out paperwork correctly. Both things could lead to delays and ultimately hurt your chances of getting any debt relief at all.

This is not a journey to take lightly, but it is also not one to take alone. So, if you need to file for bankruptcy, reach out to us today to start your journey with us.

To learn more about the options you have and the steps to take, call us for a free consultation.