How To Declare Bankruptcy

Debt is something that a majority of Americans are dealing with. According to the credit reporting bureau Experian, when you add up such debt as mortgages, auto loans, student loans, credit cards, and personal loans, the average American has $104,215 in debt. Most folks can repay those debts over time, provided they can maintain a good-paying job. However, for those who can’t repay creditors, filing for bankruptcy could be a way to rebuild their finances and get them back on the path of saving for the future.

The United States Bankruptcy Code has established six types of bankruptcies, referred to as chapters. Out of those different chapters, municipalities file for Chapter 9, farmers and fishermen file for Chapter 12, companies involved with foreign entities file for Chapter 15, and businesses can file for Chapter 11. Individuals have the option to declare either Chapter 7 or Chapter 13. Explore more information about the different chapters of bankruptcy.

Declaring bankruptcy is unlike renewing your car registration with one online form and a check. Maryland residents must follow a specific process to have the courts approve their bankruptcy. The process is overseen by the U.S. Bankruptcy Court for the District of Maryland. Those rules and regulations are constantly being updated.

Here are the six phases you need to go through for a consumer bankruptcy filing:

Phase One: Counseling and Education

Believe it or not, the federal government wants every American to succeed. That is why they provide various programs to promote home ownership. They also recognize that debt is common and want to encourage you to get out of it as quickly as possible. As with home ownership, being debt-free is good for the economy.

Here in Maryland, as with other states, you must go through an approved credit counseling course at least six months before you file for bankruptcy protection. You must also complete a separate debtor education course before the discharge phase. These resources can help you set up a budget and develop a plan to manage your money and credit more effectively.

Phase Two: Decide on Chapter 7 Or Chapter 13

After completing your counseling course, you must pass a means test to see if you qualify for Chapter 7. This type of bankruptcy allows you to pay off your debt by selling assets such as property, cars, art, jewelry, etc. The goal is to see if you have access to funds to pay off some of your debt.

A standard applied to Chapter 7 applicants is that if they have an income of $100 or more after paying living expenses, they wouldn’t qualify. Also, if you don’t have any level of assets to liquidate, you can file for Chapter 13. Under that plan, a court-supervised payment plan will be set up that you must comply with to pay off a portion of your debt. That filing allows you to stay in your home. However, all your expenses, such as vacations or a new car, will be monitored. Additionally, if you receive any work bonus or raise, that extra fund must be paid towards the debt repayment.

Keep in mind that this plan is set for a specific period of 36 to 60 months. That means you will not repay the debts that you’re seeking relief from for the rest of your life.

Phase Three: Collect Documentation

Once you have determined which type of bankruptcy you will file for, you must gather the relevant documentation. That will include copies of the following:

• Proof of all sources of income
• Previous two years of any major financial transactions
• Monthly living expenses
• An itemized list of all secured and unsecured debts
• List of all assets
• Last two years of state and federal income tax returns
• Real estate deeds
• Car titles
• Loan documents

Phase Four: Filing the Forms

Now that you have all your documents and proof of credit counseling, you will begin the filing process. That involves filling out the forms that are referred to as schedules. Those schedules ask for even more information, including the following:

• Any creditor account information
• Proof of property
• Claimed exceptions
• Co-debtors
• Income
• Expenses
• Financial affairs statement

The filing phase is extremely complex and requires support from experienced attorneys who understand all the intricacies of declaring bankruptcy. After all the preparation, you don’t want to make any errors with filing. After your filing is complete, an automatic stay goes into effect on your behalf. That means all your creditors are prohibited from contacting you about any amount you owe them.

Phase Five: Attending a Meeting of Creditors

The court will assign a trustee to preside over your bankruptcy case. This will be the individual who will oversee the liquidation of your assets or debt repayments (depending on the type of bankruptcy you file). You must meet with your trustee and any of your creditors in person. That allows those creditors to raise objections. Creditors are not obliged to attend this meeting, and most often, they don’t.

Phase Six: Discharge

Provided you meet the qualifications to file, and your creditors and the trustee agree to it, your bankruptcy case will end with a discharge. That indicates that your debt obligation has been satisfied in the eyes of the court. Even with all the help you can get from bankruptcy, some forms of debt won’t be discharged. Those include back child support, student loans, or any money owed to the Internal Revenue Service (IRS).

Get the Right Legal Support

Declaring bankruptcy is a major decision that will impact you and your family for years. It can also be a way to move forward and rebuild your financial future. To ensure your filing has the best chance of getting approved and your debt discharged, you will want to involve a bankruptcy attorney in Baltimore to help. Call us at Belsky & Horowitz, LLC to set up a free consultation today to get the process started.