by LawInc Staff
November 19, 2023
Filing for bankruptcy can be a difficult but necessary step for individuals facing severe financial distress. With close to 500,000 bankruptcy cases filed each year in the U.S., it’s clear this option remains relevant for many people seeking debt relief and a fresh financial start.
Understanding the bankruptcy process is crucial when evaluating if it’s the right choice for your situation. This guide covers key factors to consider when filing bankruptcy.
1. Qualifying for Bankruptcy
- Financial Distress: Individuals typically qualify if unable to pay debts and facing hardship like wage garnishment or foreclosure.
- Means Testing: Applies to Chapter 7; compares income to state median; high earners may be required to file Chapter 13 instead.
- Credit Counseling: Must receive credit counseling 180 days before filing; proves bankruptcy as last resort.
- Previous Filings: Restrictions exist on how often you can file; varies by chapter.
2. Chapters of Bankruptcy
- Chapter 7: Liquidation; eligible assets sold to pay creditors; remaining debts discharged.
- Chapter 13: Debt reorganization; debtor keeps assets; repays creditors through payment plan.
- Chapter 11: Business reorganization; company remains operating while repaying creditors.
3. Costs to File
- Court Filing Fees: Vary by chapter choice; due when petition is filed; Chapter 7 fee is $338.
- Attorney Fees: Average $1,500-$3,000 for less complex filings; higher for complex cases; paid up front or via payment plan.
- Pre-bankruptcy Credit Counseling: Required counseling averages $50-$100 and paid directly to agency.
4. Meeting of Creditors
- Attendance Required: Debtor must attend; failure to appear can lead to case dismissal.
- Under Oath: Debtor is placed under oath and answers questions about financial affairs.
- Creditor Participation: Creditors can attend and ask questions if desired.
5. Timeline of the Process
- Petition Filing: Case formally begins when bankruptcy petition is filed with court.
- Automatic Stay: Collection against debts is halted upon filing; creditors must cease contact.
- Meeting of Creditors: Held about 30-60 days after filing; debtor questioned under oath.
- Discharge Granted: Court order releasing debtor from liability for dischargeable debts; timing varies.
6. Debts Discharged
- Elimination of Debt: Discharge provides fresh start by eliminating legal obligation to pay.
- Exceptions Apply: Certain debts like taxes, fines, alimony cannot be discharged.
- Ongoing Liens: Discharge removes personal liability but valid liens remain on property.
7. Rebuilding Credit After Bankruptcy
- Negative Impact: Bankruptcy damages credit score, especially right after filing.
- Gradual Rebound: Credit score typically rebounds and improves over time.
- Disciplined Habits: On-time payments, low balances, and financial prudence help demonstrate changed behavior.
Need Help With Bankruptcy Filing?
Contact us to speak with a knowledgeable bankruptcy attorney and if you need guidance on the process and to determine if filing is right for your situation.