So You’ve Decided to File for Bankruptcy. Now What?
Making the decision to file for bankruptcy is a huge decision not to be taken lightly. There is so much to consider when you’re taking such a big step --- evaluating all your options, understanding what bankruptcy will do for you (and what it won't do), and understanding the consequences of filing for bankruptcy. If you have already made up your mind to go the bankruptcy route, you might be wondering about the steps in the process.
Step 1: Find a Good Attorney - It's important that you find an attorney who is experienced with bankruptcy law. There are several ways to find a good bankruptcy lawyer. Sometimes a friend or family member can recommend a bankruptcy attorney. Some people pay for legal counsel through their job. Your state bar association should have directories with bankruptcy attorney information. There are also online directories, such as the National Association of Consumer Bankruptcy Attorneys and the American Board of Certification. If the cost of an attorney (often between $1,250 and $3,500) sounds intimidating to you, keep in mind that some attorneys work pro bono (at little or no charge). The least expensive attorney may not be your best option. Make sure you are comfortable with the attorney and ask who you will be dealing with during your case.
Step 2: Conduct a Bankruptcy Counseling Session - The bankruptcy process includes two mandatory credit counseling sessions that must be completed with a counseling agency that has been approved by the U.S. Justice Department. The first round of pre-filing bankruptcy counseling occurs prior to filing the bankruptcy paperwork with the courts. During the session, the counselor will discuss your budget and point out the pros and cons of bankruptcy, as well as typical alternatives to bankruptcy. (The second type of counseling occurs in step 5 below.) GreenPath is approved to provide both the pre-filing bankrutpcy counseling and the debtor education session.
Step 3: Filing for Bankruptcy With the Court - Filing with the court cements your decision to file for bankruptcy. After you file with the court, the bankruptcy appears on your credit report and creditors must stop calling you or making attempts to collect on your debt. The reason why creditors are prohibited from contacting you is because bankruptcy invokes an “automatic stay,” which stops all legal activities from taking place the moment the bankruptcy is filed.
Step 4: Liquidation or Repayment - Depending on whether you file a Chapter 7 or Chapter 13 bankruptcy, step four would involve liquidating any assets of value to repay your creditors (Chapter 7) or repaying a portion of your debt over a 3 to 5 year period (Chapter 13). If you file a Chapter 7 and have no assets of large value, it is called a “No Asset Case,” and the courts will not sell your property. Keep in mind that if you have secured debts that you wish to keep, like a house or car, you will need to continue making payments on those debts moving forward. You should inform your attorney of any secured property you wish to keep after the bankruptcy.
Step 5: Complete a Debtor Education Course - As previously mentioned, there are two counseling sessions required in the bankruptcy process. The second session is an education course that must be completed prior to having your debts discharged. GreenPath is approved to provide both the pre-filing bankrutpcy counseling and the debtor education session. The GreenPath version of debtor education can be completed 100 percent online, or by reading a book and speaking with a counselor.
Step 6: Debt Discharge - The final step of bankruptcy wipes away your debt and removes your obligation to pay creditors included in the bankruptcy. If the weight of your debt has been causing you to have sleepless nights, the discharge will most likely bring you some relief. Just remember, however, that the discharge isn’t the end of your journey. You now have to begin the process of rebuilding your credit.
Helpful Link - Experian, one of the credit reporting bureaus, offers helpful information on how a bankruptcy impacts your credit report.
Disclaimer: This article is not to be used for legal advice. Speak with an attorney if you have specific questions about your situation.