A Guide To Declaring Yourself Bankrupt

For many people, the threat from harassing creditors and the piles of late payment notices can quickly become overwhelming. Although society in general tends to view troubled borrowers in a negative light, most of them didn’t end up in trouble due to poor decision making; rather, many experienced life changing events or fell victim to unforeseen circumstances. After all, who could have seen the fall of the U.S. housing market and the inevitable crumbling of the stock market? What these events all boil down to for many people is a desperate need for financial repair. Some people find themselves so immersed in debt that they need swift and severe action. Fortunately, the personal bankruptcy process was created with this in mind.

Although the United States Government originally designed the personal bankruptcy process to help troubled creditors, future amendments to the process allowed it to be applied to borrowers as well. Currently, there are two main types of consumer bankruptcy protection – Chapter 7 and Chapter 13. Under Chapter 7, a debtor essentially declares that they are unable to pay back a significant portion of their debts. Any non-exempt assets that they own are put toward paying off a portion of their debts and the rest of the debts are eliminated. Chapter 13 is a bit different in that it provides the debtor with the ability to repay their debts over a period of time, usually 3 years. This form of bankruptcy is chosen by debtors that wish to hold onto to their valuable assets such as houses, automobiles or property. Qualifying for chapter 13 is a bit more difficult than it is for Chapter 7, though both will require that you submit detailed information related to your assets, liabilities and household income.

Regardless of what you may have seen on late night television, declaring yourself bankrupt isn’t as simple as filling out a few pieces of paper or making a telephone call to some shady debt repair agency. On the contrary, the process is time consuming and can prove to be very stressful for most people. You will be asked to provide detailed information related to your finances and you most valuable assets will be put at significant risk.

The following steps must be completed before your bankruptcy becomes approved. Yes, that’s right – you must be approved before you can file for bankruptcy.

1. Preparation of Documents – as mentioned above, you must collect information related to your assets, liabilities and household income. This information will be used to determine whether or not you qualify, and if so, the type of bankruptcy protection that will best suit you. Information related to your assets will also be provided to your creditors, whom may choose to go after them for repayment purposes. For obvious reasons, the information you provide should be as exact and complete as possible.

2. Filing and Fee Payment – once your document preparation has been completed, you will be required to file and pay a fee. This fee will vary depending on where you live, but will most likely run between $300 and $500. Keep in mind that any legal or professional advice you seek can increase this amount substantially.

3. Completion of Credit Counseling – the law requires that you complete sessions in consumer credit counseling before your bankruptcy application is approved. This process is meant to refresh your understanding of money management so that you don’t end up in a similar predicament later on down the road.

Although obtaining legal or professional financial advice isn’t required by law, it’s highly recommended that you speak with someone regarding your finances before you file. The right person can provide you with an unbiased perspective and can help you make the best decision concerning your financial future. If you decided to hire a bankruptcy attorney, this person can prepare your documents for you and can also represent you in court as necessary, allowing you to focus on getting your life back together.