1. Make sure you have researched all your alternatives and have discussed your situation with a qualified attorney (even if you don't plan on using an attorney, it's a good idea to get the free consultation). If you decided to use bankruptcy, consider the long term effect it will have on your credit and future employment. Remember, bankruptcy will remain on your credit for 10 years and even though bankruptcy may actually improve your credit, it may limit your eligibility for certain jobs and credit offers. Bankruptcy does, however, allows for a fresh start. Changes made with the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA"), significantly changed the U.S. Bankruptcy Code effective October 17, 2005, prior to filing a bankruptcy, individuals must have consumer credit counseling approved by the U.S. Trustee within 180 days of the date of the filing of a bankruptcy case. This counseling should help you establish alternatives to bankruptcy, such as a repayment plan outside of bankruptcy.
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2. Decide which type of bankruptcy is right for you. Chapter 7, the most popular, liquidates your assets and uses that money to pay your creditors, while completely eliminating your debt. Chapter 13 allows you to keep your assets and establishes a legal repayment plan with your creditors. The new laws have made chapter 7 more difficult and with the current foreclosure rates, Chapter 13 is becoming more popular. In your free consultation with an attorney, they should help you decide if a chapter 7 or 13 is right for you.
3. Decide if you want to use an attorney to file. Some people choose to file using our Do it Yourself option, while others feel more comfortable using the attorney they do their consultation with. We generally recommend using an attorney, but if you feel confident in your ability, or if you are short on funds, the do it yourself option should do just fine.
4. Meet with the lawyer you've selected to review your situation and have any questions you may have answered. If your attorney does not leave you with a good feeling, or if you did not get all your questions answered, you should try to find a new attorney. The attorneys within our referral system have been used by many people in the past and should be a great referral source. You should also discuss how to handle creditors when they call at this point. Your attorney should allow you to begin forwarding creditor calls to him/her immediately.
5. If you are comfortable with the attorney you have chosen, you will then need to discuss their fees. The fees for filing bankruptcy will change from one attorney to the next, but many will have a flat up front fee. If you have a very small amount of debt, an attorney who charges based on the amount of debt, or actual work performed may be better. The average rate for bankruptcy services is somewhere between $1000 and $3000. In most cases, this fee must be paid up front before you case is filed.
6. Your attorney should help you complete the BAPCPA Means Test, if this hasn't already been done and will then file your case. The next step is the meeting of creditors, or a "341 meeting". This meeting allows the trustee to verify the your information on your bankruptcy petition (debts and assets). You should review this information with your attorney to make sure everything is accurate and noting is left out before this meeting, obviously. This is a fairly quick and painless process, if you have prepared accurate documentation. A creditor may challenge your debt if you obtained this debt with no means or intentions of repaying the debt in question. During this process, you should not be continuing to charge credit cards, or opening new debt. Your attorney should explain this to you as well.
7. At this point, your assets will either be liquidated and your debt will be eliminated (Chapter 7) or a repayment plan will be established (Chapter 13). Your creditors will have 60 days to dispute the discharge of any or all of your debt. If no creditors file a lawsuit to dispute the discharge, you debt will be discharged. In a Chapter 7 the debt is discharged almost immediately, while a Chapter 13 is not discharged until you have completed the payment plan.
8. After the bankruptcy is discharged, you can begin building your credit. In many cases, you will qualify for new debt within as little as 6 months. Your credit report should show that that debt was discharged in bankruptcy and the public record section of your report should report a bankruptcy for 10 years. The key to rebuilding your credit is to establish new accounts (in good standing) as soon as possible. You will be starting fresh, so do your best to start on the right foot.
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