Bankruptcy is the process of settling your debts with creditors through arrangements with the US Bankruptcy court. If you can no longer meet your debt obligations then the United States Bankruptcy laws are designed to help you and creditors reach a settlement. The settlement can be a complete liquidation of your assets or a reorganization of your payments for your debts.
Many people think of “going into bankruptcy” as a stigma and a very bad thing to have to do, but in reality it may be the best solution for a struggling debtor. It can eliminate most of the stress of financial problems and actually give someone a fresh start. Once you’ve faced your financial issues and come to an agreement with your creditors, people often say they feel like a great load has been lifted.
And for most people they can get back on their feet again within 5 years without doing much harm to their credit rating. It really can be a win-win situation.
And bankruptcy is not only for individuals. Many businesses can get back on their feet by arranging the appropriate settlement with their creditors and vendors. Going into bankruptcy doesn’t have to mean that you go out of business. In fact, it may be the best solution for staying in business.
How Does Bankruptcy Work?
Bankruptcy is always settled in United States Bankruptcy Court as a filing of some specific type. The set of laws governing bankruptcy is called the Bankruptcy Code.
However, state law can have a major affect, particularly as it applies to validity of claims and exemptions. And because bankruptcy law differs from state to state, it’s always good to have an attorney who understands your state’s laws.
Usually, a debtor declares bankruptcy to obtain relief from debt, and this is accomplished either through a discharge of the debt or through a restructuring of the debt. Generally, when a debtor files a voluntary petition, his or her bankruptcy case begins. This petition is a lengthy form (40 pages) that must be filled out completely and then filed with the Bankruptcy Court.
Can You File For Bankruptcy Yourself?
Yes you can. But to do it you will have to become an expert in bankruptcy law along the way. Bankruptcy Laws are complex and occasionally change and, depending on your situation, you will need to understand the advantages and disadvantages of filing the different types of bankruptcy, Chapter 7, Chapter 11, and Chapter 13.
Steps In Filing Bankruptcy
By Federal Law, before someone can file for bankruptcy must undergo credit counseling through an approved credit counseling provider. The goal is to make you aware of alternatives to bankruptcy before you actually file. This counseling can often be provided online.
The official process starts by undergoing a “means test.” During this step it will be determined if you have sufficient income to pay at least 25% of your non-priority debt. The results of this test will determine which type if bankruptcy you qualify for.
File a petition in bankruptcy court entitled a “statement of financial affairs.” This is a summary of all your debts including both long-term and short-term, and includes mortgages, credit cards, car loans, and personal loans. You’ll also provide the names of all creditors and a list of assets.
You’ll need to attend a “341 meeting” also known as a first meeting with all creditors. An administrator is assigned to your case and will oversee all meetings and distribution of assets, and any payment arrangements. This administrator is sometimes called the trustee and will determine the validity of what you say and what your creditors say.
You’ll attend a bankruptcy hearing in court where a judge will approve or deny your application for Chapter 7 or Chapter 11.
The Final Decree or Discharge. This is when the actual release from the debt takes place. It usually takes 4-6 months for this to happen.
For more videos visit the United States Bankruptcy Court mid Florida website here.
If you’d like to learn more about how Brown & Associates can help you understand your bankruptcy options please contact us for a free consultation.