Filing for Bankruptcy: Step by Step
What is Bankruptcy?
1. Bankruptcy is a Federal program that enables an individual or business entity facing insurmountable debts to restructure their debt obligations through liquidation or restructuring.
2. As a result of these characteristics, bankruptcy claims enable those in debt to seek alleviation through an alternative payment plan or the assets obtained from liquidation.
3. As set forth above, bankruptcy is a Federal program, meaning the laws and regulations which govern the claims are distributed and heard at the Federal level. In other words, individuals or business entities may not file for bankruptcy at the local level.
4. Individuals and business entities who file bankruptcy do so to free themselves from the constraints of creditors who perpetually seek repayment. Through the inclusion of a Government agency, those individuals and entities struggling with debts can reorganize their debt structure by supplying incremental payments to their creditors.
5. There are many different forms of bankruptcy filings, the most common being: Chapter 7 filings, Chapter 11 filings, and Chapter 13 filings.
6. Each form of bankruptcy claim seeks to alleviate the individual or entity’s debt through different means. A Chapter 7 filing will immediately resolve debts through liquidation—the individual or entity’s assets are sold and the proceeds from the liquidation are used to pay off the debts owed. A Chapter 11 filing is typically initiated by a business entity that is struggling with sales or earning a profit.
A Chapter 11 filing enables the business to maintain its operation (through the appointment of a trustee) while developing repayment plans that are aligned with the company’s expected profits. Lastly, a Chapter 13 Bankruptcy claim enables an individual or business entity to restructure their payment plan through the delivery of incremental payments. The incremental schedule is developed based on the debtor’s income, living expenses and the various amounts owed to the underlying creditors.
How to File for Bankruptcy
1. The first step to filing for bankruptcy requires that the individual debtor contact a reputable bankruptcy attorney. To find an experienced bankruptcy lawyer, you should contact your local or State Bar associations for referrals or ask friends if they know a suitable bankruptcy attorney.
2. Gather all your financial documents—including outstanding bills, paycheck stubs, bank statements, car loans, tax returns, and copies of your mortgage from the most recent six months.
3. After gathering these documents, you must deliver them to your attorney to initiate the paperwork. Bankruptcy paperwork (known as a Petition) requires that the debtor list every debt owed. Failure to include every debt will result in a termination of your bankruptcy filing. It is also a Federal crime to lie on your bankruptcy petition.
4. Discuss with your lawyer all secured and unsecured debts that exist on your petition. Secured debts refer to those assets (e.g., cars or mortgages) where creditors may hold a security interest in the property. If the debtor does not fulfill the obligations of their debt, the creditor may claim these assets. In contrast, unsecured debts refer to debts not secured by property, such as medical bills or credit cards.
5. After review of all the information, it must be determined which type of Bankruptcy claim should be filed. Once the claim has been determined, you must sign off that all of the financial information gathered is accurate. From here, your attorney will file your case with the Bankruptcy Court that oversees your particular district.
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