Filing bankruptcy can provide the relief you need from your current debts, and knowing how to declare bankruptcy is essential if you want to experience a process that is efficient, and one that can accomplish your end goals. Declaring bankruptcy may seem like a difficult task, but if you know exactly how and when to declare bankruptcy you can often avoid many of the common pitfalls that individuals typically encounter during the bankruptcy filing process. Preparing to declare bankruptcy begins by first getting a grip on the kind of bankruptcy you may be eligible for, as there are a number of different types of bankruptcy.

Which Chapter of the Bankruptcy Code Should I File For?

There are six major chapters of bankruptcy—chapter 7, chapter 13, chapter 11, chapter 12, chapter 9, and chapter 15. If you were wondering how to declare personal bankruptcy, then you are going to most likely be interested in filing for either chapter 7, or chapter 13, as these are the chapters that are designed for individuals and not businesses, or other sorts of organizations.

Chapter 12 is also designed for individual citizens, although it is focused on providing debt relief to family farmers and fisherman, and unless you fall into either of these two categories you are probably going to want to look passed filling for this chapter. Chapter 11 is designed specifically for a partnership or corporation, and chapter 9 is designed for the reorganization of municipalities—you will therefore not want to consider filing for either of these chapters. Chapter 15 has to do with the resolution of debts that may exist in regard to the involvement of entities that may lie outside of the United States, and you therefore in all likelihood will want to overlook filing for this chapter.

Should I Declare Bankruptcy—When to File Bankruptcy

Knowing when to file bankruptcy is crucial if you are unsure about whether your situation will benefit from the end goals of a bankruptcy, and it is essential that you spend enough time to carefully examine all of your debt relief options before you go ahead and haphazardly go through with a particular filing. Bankruptcy is in fact a debt relief mechanism, and the primary reason you should ever consider declaring bankruptcy has to do with your situation in regard to your personal debts. When your personal level of debt gets to a point where it becomes unmanageable, and you think that you may not ever be able to pay it all back, it may be time to start thinking about declaring bankruptcy.

A bankruptcy filing can provide you relief from your current creditors, and can essentially allow you to not have to pay either some, or all of your current personal debts back. This will depend on your current financial situation, and the type of bankruptcy you qualify for. A bankruptcy is not without a serious downside though, and you must be aware that a bankruptcy filing is going to be on your credit report from anywhere between seven and ten years, and can severely limit your ability to get the vast majority of loans and credit products that are on the market. The ones that you are able to get will most likely only be provided to you at an extraordinarily high interest rate, and this can have a significant impact on the price you’ll have to pay for a house, a car, or even your cell phone.

There is no hard and fast rule that can determine when you should declare bankruptcy, as a number of factors should play into your decision. You should first make sure that you have exhausted all of your debt relief options besides bankruptcy. Things like debt settlement, consolidation, refinancing, and budget reformatting should all be explored before you think about declaring bankruptcy. If you have looked into these kinds of debt relief options and still have determined that your level of debt has become out of control, and almost impossible to pay back, it may then be time to seriously consider declaring bankruptcy. Just remember that a bankruptcy should only be considered as a last resort, and should never be looked upon as an easy method to relieve your personal debt obligations.

Chapter 7 vs. Chapter 13 Bankruptcy

Now that you have determined declaring bankruptcy may be a good option for your situation, you must take into consideration how you should go about doing it exactly. Declaring personal bankruptcy is not always a simple process, although it can be relatively unproblematic as long as you know what you’re doing. As was stated earlier, the kinds of bankruptcy that you are going to most likely be eligible for are either a chapter 7, or chapter 13 filing. These are the types of bankruptcy that can give you full, or partial relief from your current personal debts, and which one you qualify for will almost always depend on your current level of income.

Determining whether you should file for chapter 7, or chapter 13 is going to most often come down your level of income, and your willingness to pay back some, or all of your debt. The primary difference between a chapter 7, and a chapter 13 filing has to do with the fact that with a chapter 7 filing you can typically get the majority, if not all of your debt discharged, and will therefore never have to pay any of it back. With a chapter 13 filing you are going to have to pay some of your current debt back on a payment plan, which will be established by the bankruptcy court in accordance with input from both yourself, and your creditors.

Most people would prefer to file for chapter 7 since it can provide a full expungement of personal debt without the need to have to make any sort of back payments to creditors. The problem is that you must qualify for a chapter 7 filing, and the primary factor that is going to be considered is your level of income. If you make more than a certain amount of money then you may not be eligible for a chapter 7 filing, and you will instead have to go with a chapter 13 filing. This is determined via what is called the chapter 7 means test, as this is the actual formula that is used to evaluate whether or not you make enough money to pay back some of your debts.

While it is beyond the scope of this article to go into detail about how the chapter 7 means test specifically makes this computation, you can get a fairly good idea of your ability to pass by knowing what the income of your household is in relation to the median income of a household that is your size in your state. If you make less than your state’s median income, you automatically pass, if you make more, the chapter 7 means test formula takes over and your ability to pass will reside on a fairly complex computation that includes factors such as your income, and current expenses. Just know that your chances of passing are going to decrease as your income increases in relation to your state’s median household income. The only real caveat is if you have a high amount of monthly expenses, such as a high mortgage payment. There are a multitude of online resources that can provide you with an actual chapter 7 means test calculator, but in reality it is probably best to consult with a qualified bankruptcy attorney to definitively determine whether or not you should file for chapter 7, or chapter 13.

Consulting with a bankruptcy lawyer normally doesn’t cost that much if you are only going in for an initial evaluation of your situation, and by going this route you can get a much better idea of your options going forward. Some people decide to completely skip this step, and that is fine if you are confident in your understanding of the bankruptcy laws, and the appropriate methods and procedures, but in all likelihood you aren’t an expert on the ins and outs of filing bankruptcy, and you should therefore always consult an attorney before moving ahead with any sort of action steps.

Once you have consulted with a bankruptcy lawyer and have determined the kind of bankruptcy you need to file for, it is then time to actually go ahead and proceed with the bankruptcy filing. This begins with the filing of the appropriate petition and forms at the bankruptcy court that serves the area where your primary residence is located in. The kind of information you’ll typically have to provide will include the details of your income, debts, expenses, property, and other sorts of personal data. Once you have successfully filled out all of the appropriate forms with all of the relevant and sequestered information, your bankruptcy case will then become official, and set into motion.

How to File for Chapter 7 Bankruptcy

The process going forward will then depend on whether you filed for chapter 7, or chapter 13. If you filed for chapter 7, then you are most likely only going to have to go to one meeting to meet with your case trustee. This meeting is to discuss the information that you submitted during your initial bankruptcy filing, and to allow for the asking of questions and the venting of concerns. It will then be up to you to handle any disputes that you may have with a creditor that has filed a claim against you, or if you want to eliminate any particular liens before your bankruptcy case is closed.

You’ll also have to follow-through on the way you stated how you are going to handle any secured debts that you may have, as you stated this within one of the forms that you provided during your initial filing. That should essentially be all that is required on your end, and eventually the court should issue you an order that will state that your dischargeable debts have been officially discharged. Once this happens you will no longer have the legal obligation to make any back, or future payments on such debts, and your creditors will no longer have the legal rights to demand such payments.

How to File for Chapter 13 Bankruptcy

There are a few differences when compared to a chapter 7 filing that you’ll have to take note of if you’re filing for chapter 13. When you first file the appropriate forms with the court that presides over the area that you live in you are also going to have to draft, and submit a payment plan that reveals exactly how you plan to pay back some, or all of your debt. You will then have to attend a meeting that will involve you, your case trustee, and perhaps your creditors. During this meeting your case trustee will go over your paperwork, and your creditors will be allowed to go over your repayment plan and perhaps negotiate with you.

You will then have to attend a confirmation hearing where the judge will rule on whether or not to confirm your plan, and during this hearing any creditors may attend to raise objections, as the judge will rule on these as well. You will then have to begin making payments according to the payment plan that the judge confirmed within thirty days of the hearing. You may have to return to court if there were any details that were not ironed out, or if there was some kind of issue with your case. That is pretty-much it, as you will then have to keep on following your repayment plan according to the appropriate settled upon terms, and upon its completion the court should issue you a discharge order that should eliminate the remainder of your dischargeable debt.

Declaring Personal Bankruptcy Conclusion

You should now be free of your unsecured debt, and by knowing how to declare bankruptcy you have most likely given yourself a fresh financial start that will allow you the necessary freedom to live your life how you want to. Remember that you should always do as much research as you can on your own in combination with the assistance from a qualified bankruptcy attorney if you want to achieve the appropriate end goals that will allow you to get the most out of your bankruptcy filing. Declaring bankruptcy isn’t extraordinarily complex and difficult, but it isn’t the simplest of tasks either, and by taking the time out to learn how to go about it properly you have hopefully ensured that you have maximized your debt relief potential, and in the end this will hopefully give rise to the outcomes that will benefit you the most.