Financial losses and unredeemable financial burdens often force individuals to opt for discharge of their liabilities. Thankfully, laws and Supreme Court rulings in the United States give the honest and unfortunate debtor a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt. A broad procedure of filing for bankruptcy is provided here.
In the United States, bankruptcy filings are commonly filed under chapter 7 and chapter 13. The chapters mentioned here refer to contents of the Bankruptcy Code enacted in 1978 by Congress under authority of the United States Constitution. The most basic tenets of bankruptcy laws are to enable a clean and fresh start for those un-redeemably burdened with debt, by wiping out incurred debts and thereby discharging them of liabilities through the liquidation mechanism.
Chapter 7 bankruptcy basically is a liquidation proceeding. Here the individual filing for bankruptcy is required to surrender all assets, barring those that are exempt, to the bankruptcy trustee. This trustee is vested with the task of converting these assets to cash and disbursing them to creditors. As it turns out, by the end of bankruptcy proceedings, a majority of people filing under chapter 7 are not left with any assets, but their debts being totally wiped out, they get back to life with a new start.
Chapter 13 bankruptcy filing allows debtors to reorganize their debts and also provides for its repayment over a period of time, normally three to five years. It works well for those individuals who choose to keep some of their assets out of the bankruptcy proceedings and also have a predictable income flowing in to handle regular expenses as well as to clear debts.
Here’s how to file for bankruptcy –
- The Federal Rules of Bankruptcy Procedure [commonly known as Bankruptcy Rules] and rules of the local bankruptcy courts provide for the procedure involved in a bankruptcy proceeding. Filings are made at the bankruptcy court situated in your judicial district. There are some ninety bankruptcy districts across the United States. Each has their clerk’s offices that assist in the filing process.
- Bankruptcy proceedings are mostly administrative, involving filing of prescribed forms, documents and information. These are conducted by a bankruptcy judge away from regular courts.
- Prior to filing for bankruptcy under Chapter 7, the law requires that the individual undergo credit counseling for a period of six months; sometimes it could be reduced to thirty days prior to filing. Nevertheless, filings without undergoing credit counseling are bound to be dismissed.
- Once a petition is filed along with financial information that includes latest tax filings, the assets and property belonging to the individual filing for bankruptcy should be handed over to the bankruptcy trustee. By process of law, an automatic stay gets granted on all proceedings by your creditors, thereby granting protection from creditor harassment.
- Normally, the court-appointed trustee takes between 3 to 4 weeks to review your petition, and initiate actions for disposal of your assets; a date is set for meeting with creditors, which is held anytime from between twenty to ninety days from filing.
- The next step is to determine if the individual is eligible for a Chapter 7 filing. If found ineligible, the court grants direction for filing under Chapter 13.
- Having established eligibility, the trustee proceeds to dispose of the assets. The proceeds from this sale are used for disbursement to creditors and to pay for expenses incurred by the court.
- Recent changes in the law require individuals opting for bankruptcy proceedings to attend financial management classes.
- Upon successful completion of this course, a final hearing is held and the court grants order of discharge from earlier liabilities and enables a fresh start of financial life.
This is a broad outline of the procedures for bankruptcy filing. It is beneficial to consult a bankruptcy attorney for assistance.