Many people get into debt before they even realize it. In fact, the only way to avoid filing bankruptcy is by keeping your bills in the black and not accruing any new debt. Some people will file because a medical emergency arises which prevents them from making their payments or because their business has failed and they no longer have income coming in.
However, most of us file for other reasons – divorce is quite common as are other significant life events such as losing a job or getting married. Before a person files for bankruptcy, he or she must be able to prove to the court that the circumstances qualify for the relief offered by the bankruptcy code. One thing that helps people file for bankruptcy is talking to bankruptcy experts, to avoid complications. Below is a brief outline of the basic requirements for filing for bankruptcy.
Financial Requirements for Applying for Bankruptcy
1. You are required to have taken advantage of all reasonable means of solving your financial problems prior to applying for bankruptcy. You will be held responsible if you can prove that you did not make enough effort to find a solution before filing bankruptcy.
2. You are expected to list all your assets and liabilities in a Chapter 7 bankruptcy. The most important asset is your home which is often listed as “exempt.” This means that if you have equity in your home, you can protect it by filing for bankruptcy. Chapter 7 debts such as child support, alimony or student loans are also exempt from being included in the bankruptcy filing.
3. A bankruptcy is recommended if you have the ability to repay all or a portion of your C debts. You may also file for a Chapter 13 if you have several unsecured debts such as unsecured credit card balances.
How to File Bankruptcy: What to Do Next
1. Complete an “Official Statement of Debtor” which asks you a series of questions about your financial situation. You will also need to include information about your assets, your income and your debts.
2. Gather as much documentation as you can about any assets and liabilities you have to submit with this declaration form. Get copies of all your bank statements, credit card bills and other documents which prove the amount and nature of the debts you have incurred.
3. Assemble any forms required by the court such as a “Disclosure Statement of Financial Information. You will need to include with this Disclosure Statement any information you have about any assets or debts you may have which are not listed in the Official Statement of Debtor.
4. Complete a Schedules of Assets and Liabilities outlining your assets (such as cash and cash equivalents, homes, vehicles, etc.) and all your debts.
5. Prepare the necessary documents to deduct from your income for the support of your children or for repayment of tax obligations that are assigned to the Trustee under Chapter 13.
6. Submit your declaration, schedules and all forms required by the court for filing to the Trustee.
7. File a copy of your declaration and all required forms with the court. Review the instructions for completing all necessary documents with your attorney.
8. File the petition with the bankruptcy court.
9. Confirm that you have received proper credit counselling or have obtained a “Notice of Certification”. This notice must be submitted to the court if you are to file a Chapter 13 plan, and you will receive a copy of this certification when your case has been filed with the court.
10. Have a trustee approve your application or choose a trustee to oversee your case. Your Trustee will be able to answer any of your questions and explain what you as the debtor need to do next.
Filing bankruptcy is not an easy decision and there are many legal obstacles that must be overcome before you can even get approval to file.
However, most debtors will be able to benefit greatly from bankruptcy by wiping out most of their debts and starting over with a clean slate. If you are one of the 30 million Americans who have filed for bankruptcy in the past ten years, chances are that you have been unable to repay some or all of your debts and that filing bankruptcy will be the best option for you.