As an individual you can file for bankruptcy under Chapter 7 or Chapter 13. The bankruptcy process begins when you file your petition in a bankruptcy court. Once you file your petition, your creditors are legally barred from taking any action to recover the debts from you. This is known as the automatic stay.
A Chapter 7 bankruptcy is a liquidation process. A court appointed bankruptcy trustee will liquidate your non-exempt assets and sell them to pay off your creditors.
In a Chapter 13 bankruptcy you must submit a repayment plan to the court. This plan must explain how you intend to pay off all your creditors over a period of 3 years. The plan must be approved by the court and you must pay off all your creditors according to the plan.
If you want to file a Chapter 7 bankruptcy, you must pass the “Means Test”. If you do not pass the “Means Test”, you can file under Chapter 13. To pass the “Means Test”, your average income for the 6 months prior to your filing must be less than your state’s median income. You can still file under Chapter 7 when your average income exceeds your state’s median income, you can still file under Chapter 7 if you cannot pay at least $6000 of your unsecured debts over the next 5 years. You will not qualify for filing under Chapter 7 if you are able to pay at least $10,000 in unsecured debts. If you can pay more than $6000 but less than $10,000 you may qualify for filing under Chapter 7 if you are able to pay less 25% of your unsecured debts.
You must complete a two hours credit counseling session before you file for bankruptcy. The session must be conducted by a non-profit agency. You must file the certificate issued by the agency along with your petition.
You must complete and file the “Voluntary Petition” form. This is your petition and it will ask you for some basic information, including:
- your name(s), address, and the last four digits of your Social Security number
- whether you have lived, maintained a residence, maintained a business, or had assets in the district for the better part of 180 days prior to filing
- the type of bankruptcy you are filing
- the type of debtor you are (individual, corporation, partnership, and so on)
- whether your debts are primarily consumer or business
- the estimated number of creditors and amount of your debts
- whether you have nonexempt assets
Along with your petition, you must submit the certain documents within 15 days of your filing. These documents include:
- Schedule A – List of Real Property.
- Schedule B – List of Personal Property.
- Schedule C – Property which you are claiming as exempt property
- Schedule D – List of secured creditors
- Schedule E – List of unsecured creditors with priority claims.
- Schedule F – List of unsecured creditors with non-priority claims
- Schedule G – List of contacts you have executed and unexpired leases
- Schedule H – Details of co debtors
- Schedule I – Details of your current income
- Schedule J – Details of your current expenses
- Statement of your financial affairs for the two years prior to your filing date
- Declaration that all information provided in the petition and accompanying schedules are true and accurate.
If you have filed under Chapter 7, you must also submit the Individual Debtor’s Statement of Intention, in which you tell your secured creditors what you plan to do with your property listed as collateral for a secured loan.
In a Chapter 7 bankruptcy, you will receive a discharge after the bankruptcy trustee has sold off all your non-exempt assets and paid the proceeds to your creditors where in a Chapter 13 bankruptcy you will receive a discharge after you complete making all the payments under the plan. Not all debts are discharged in a personal bankruptcy. You will be liable for certain debts. These include tax debts, alimony payments, child support payments, payments for injury or wrongful death caused by DUI, student loans, criminal fines and forfeitures, debts incurred by willful misconduct, etc. The entire list of debts not discharged by bankruptcy is provided in Section 523 of the Federal Bankruptcy Code. A debt discharged in a personal bankruptcy proceeding cannot be enforced against the debtor. Once you receive a discharge you will not be liable for the discharged debts.
Your credit score will take a hit if you file for bankruptcy. A Chapter 7 bankruptcy will remain on your credit reports for 10 years while a Chapter 13 will remain for 7 years.
Once you receive a discharge in a Chapter 7 bankruptcy you must wait for 8 years before you can file another Chapter 7 bankruptcy. If you have received a discharge in a Chapter 13 bankruptcy, you can immediately file a Chapter 7 bankruptcy if you have repaid at least 70% of your unsecured debts otherwise you must wait for 6 years before you can file a Chapter 7 or Chapter 13 bankruptcy. If you have received a discharge in a prior Chapter 7 bankruptcy, you can immediately file a Chapter 13 but you will not receive a discharge if your Chapter 13 is filed within 4 years of your Chapter 7 filing.