Searching for information about the bankruptcy process is a scary prospect. When this is what you are trying to research on, it simply means your situation is dire enough that you need the courts to step in and make a decision on your debts. Some financial experts will tell you to do your best to avoid bankruptcy at all cost. But there are cases when it is the only way out.
Some people make the mistake of removing bankruptcy from their list of debt relief options – only to end up in further debt. When you are really in a financial crisis, do not try to use debt settlement or any other debt solution if you know that you cannot afford to make any payments.
A case in point are people who are too sick to work and are still accumulating medical debt. According to an article published in CNBC.com back in 2013, health care is the number 1 cause of consumers going through the bankruptcy process. It has outpaced credit card debt and mortgages. This is true even for those who have health insurance. They are going under because of the out of pockets costs and the ridiculously high professional fees.
If you are struggling with your debts and you want to start anew, then go ahead and file for bankruptcy. It may be the break that you need to get your finances back on track.
Individual bankruptcy filings can come in two ways: Chapter 7 or Chapter 13. Let us discuss the procedure you will go through for Chapter 7. we will discuss in another article the process for Chapter 13.
What is the Chapter 7 bankruptcy procedure
The Chapter 7 bankruptcy is the preferred type of bankruptcy by a lot of consumers. This is because a successful Chapter 7 filing will discharge the debt of the consumer. That means they do not have to pay anything towards their creditors. Their assets (or those outside of the exemption list) will be liquidated. Whatever profit it will gain will be distributed to all the lenders and creditors in order of importance.
According to the reports from the American Bankruptcy Institute and published onABI.org, the Chapter 7 filing in 2013 averaged at more than 60% of all the bankruptcy filings. That signifies that a lot of people were considered to be in severe financial conditions to be qualified for this type of bankruptcy.
So what is the bankruptcy process of Chapter 7?
- Set a meeting with your lawyer. Since this is a bankruptcy case, this should be your first order of business. While you can file only by yourself, you might have a hard time with the documents and the terms used in a typical court procedure. So better look for a competent lawyer to represent you case. They will help explain and guide you through the whole bankruptcy process.
- Calculate the means test. This is to determine if you will qualify for a Chapter 13 bankruptcy or not. If you do, then you need to stop the Chapter 7 process and learn about this other type of bankruptcy.
- Prepare the documents to file. Your attorney will help you with the worksheets and the list of documents that you need to file. The list will include your income, expenses, debts and other financial transactions. These documents will all be referred to as “Schedules.”
- File the petition and schedules. This is called the petition date. The lawyer you hired will take care of this. This date will be the reference point to address events as pre-petition or post-petition.
- File the Statement of Intention. This will contain all your intentions about your credit payments. Will you be selling off a property or will you file all of them for discharge? This should be filed together with the case filing or no later than 30 days after.
- 341 Meeting. This is more commonly known as the meeting of creditors. It is set a month after the filing of the case that will take only 10 to 15 minutes. It will be presided by the trustee that is assigned by the bankruptcy court for your case. The creditors or their legal representatives will all attend to ask you a couple of questions about your finances. You or your lawyer will have to answer them.
- Deadline of exemption. This simply means the trustee has 30 days from the 341 meeting to object to any of your exemption claims.
- Deadline of personal finance management course. This is a requirement in any bankruptcy process. You need to enroll in a course that will teach you how to manage your money. This is separate from the credit counseling course that is needed before filing the case.
- Perform under Statement of Intention. 45 days after the 341 meeting, you have another deadline to reaffirm or surrender your collateral under the statement of intention.
- Deadline of dischargeability. This is 60 days after the 341 meetings wherein the creditors will have to submit their objections about any debt balance for discharge.
- Discharge of debtor. This is shortly after the deadline of dischargeability is past. When there is no challenge, the debts will be discharged by the bankruptcy court. When there is a challenge but the court decides to discharge the debt anyway,, the creditors will have to accept.
What to do after going through Chapter 7 bankruptcy
After the bankruptcy process discharged your debts, you should not think that you can now sit back and relax. You still have a lot of things to do if you want to improve your financial situation. Filing for bankruptcy does not mean you have solved the dilemma. You just got rid of your debts. To complete the debt relief program, you have to solve the reason why you got in debt in the first place.
According to the USCourts.gov, the number of bankruptcy filings went down during the period between March 2013 to March 2014. Chapter 7, in particular, went down from 804,885 to 699,982. This is a huge difference that hopefully indicates that consumers are more smart when it comes to their credit.
While you are not really encouraged to eliminate debt from your life, you are encouraged to keep it under control. Debt free living has its benefits but it does not include a high credit score. You may want to think about that.
So what can you do to keep on living with credit but avoid another bankruptcy process in the future? Here are some tips.
- Have a budget. Always have a budget plan in place and make sure you will revise it every now and then to suit the changes in your finances and your evolving priorities.
- Build up your emergency fund. Sometimes, it is the emergencies that cripple households that have been responsible with their money. Prepare for the unexpected so that when tragedy happens, you do not have to borrow money to get yourself out of it.
- Spend less than what you earn. This is the secret to wealth. This is how you can save to invest for your future. This is how you pay for your debts. This is how you build up your emergency fund. Make it a habit not to overspend because that will lead to your financial demise.
- Diversify your income. When you have income coming in from other sources, you will have financial security despite a job loss. That should be a reliable buffer in case something happens to your job.
The bankruptcy process is scary and intimidating to go through but if you react the right way, you can protect yourself from ever having to experience it again. So build up your credit score and practice the right financial management skills. That should keep you from making the same mistakes again.