So, you’re in financial trouble. How bad is it?
You’ve already tracked and examined your expenses, cut every bit of spending you could, sold off anything of value that you don’t need and used the money to pay debts, tried to negotiate with your lenders and talked to a credit counselor.
If things are still unmanageable, it’s time to declare
bankruptcy.
Although you can file a bankruptcy petition on your own, it is strongly suggested that you have an attorney help you. You may also want to consult with a financial adviser.
There are five different kinds of bankruptcy, and they are indentified by the chapter of the federal bankruptcy code that defines them. Chapter 7 and Chapter 13 are most commonly used by individuals.
Chapter 7 is a liquidation. Most people who file for Chapter 7 have no assets subject to sale. Those who do, have their property sold by a case trustee or administrator, who then distributes the proceeds of those sales to their lenders and creditors. The law protects some of your property from being sold, but what is protected varies from state to state.
Chapter 13 is a reorganization. Here, you submit a plan to pay your creditors over a three- to five-year period. Once a judge has approved it, you send a payment to a case trustee or administrator once or twice a month and the trustee disburses that cash to the companies to whom you owe money. You have to complete your payment plan before your debts are dissolved. More of your debts will be discharged under a Chapter 13 bankruptcy than under a Chapter 7.
After the bankruptcy, you will still have to pay any debts that remain.
There are qualifications you must meet in order to have your bankruptcy petition accepted by the court.
In order to file under Chapter 7, you may have to pass a means test, which measures your ability to pay your debts.
To file under either chapter, you have to have completed counseling with an approved credit counselor, and there are other rules that may come into play if you have filed bankruptcy before.