Learning how to file bankruptcy and everything it entails is the first step before taking such a serious decision like filing for bankruptcy.
Bankruptcy occurs when someone legally states that they are unable to pay their debts. There are six types of bankruptcy, but Chapters 7 and 13 are the most common for individuals.
Individuals who cannot repay their debts are eligible to file bankruptcy, so a Means Test will be given to determine eligibility as well as what type of bankruptcy is best.
There are several steps in filing, and not all are strictly legal. Some forms of counseling are required, like credit counseling and personal finance classes, to try and ensure that you will not have to file for bankruptcy again.
Below is information on how to file bankruptcy as well as how you can use bankruptcy to prevent foreclosure on your home.
How to file bankruptcy in four easy steps
There are a few basic steps in how to file for bankruptcy, but the process does vary due to state laws.
- Usually, you meet with a lawyer to discuss your eligibility to file bankruptcy as well as what chapter you should file under. It is important to be informed about the entire process, so make sure and ask as many questions as you need to feel comfortable.
- You will probably be given a Means Test as we mentioned earlier.
- You will then file a petition that documents your bankruptcy.
- Afterwards, you will be assigned a trustee. Your trustee’s role is determined by what type of bankruptcy you filed. In a Chapter 7 bankruptcy, they are in charge of overseeing the liquidation of your non-exempt assets. In a Chapter 13, they will review the payment plan you have set up.
The main difference between a Chapter 7 and a Chapter 13 bankruptcy is this: in a Chapter 7, your assets are liquidated to repay your creditors, while in a Chapter 13, you are trying to repay your debts over the next three to five years and still retain your assets.
How filing for bankruptcy can help you avoid foreclosure
A Chapter 13 can be useful in avoiding a foreclosure process on your home. As we mentioned before, a Chapter 13 sets up a payment plan for you to repay as much of your debts as you can over a set period of time given your means.
This type of bankruptcy can be beneficial because you can avoid foreclosure on your house and you can still keep it as an asset. Besides the added benefit to being able to keep your home, a Chapter 13 can hurt your credit less that a Chapter 7 because it shows you were willing to try and repay what you could.
Educating yourself on how to file bankruptcy will help you when you consult with a bankruptcy attorney.