What Happens When You File for Bankruptcy?

All consumer bankruptcies follow a general bankruptcy process. You can expect the same bankruptcy timeline in your bankruptcy case, including:

• Gathering paperwork and bankruptcy forms
• Filing the bankruptcy petition
• Meeting with your bankruptcy trustee at the creditors' meeting
• Debt relief through unsecured debt discharge

Chapter 7 and Chapter 13 are the two types of consumer bankruptcy. If your business is considering bankruptcy, you should learn more about business-related bankruptcy (Chapter 11 bankruptcy).

1. Consider the Types of Bankruptcy

Your debt types will determine whether you file Chapter 7 or Chapter 13. Some of the factors to consider include:

• Do you need more time to pay back the debt? Chapter 13 bankruptcy stops creditor harassment and gives you a debt reorganization in the form of a repayment plan.
• Do you want the bankruptcy court to dismiss your credit card debt, medical bills, and other liabilities? Chapter 7 bankruptcy discharges all unsecured debt to give you a fresh start. You must meet the means test to qualify for Chapter 7.

A bankruptcy attorney can help you review your debts and assets, bankruptcy laws, and the likely outcome of your bankruptcy case. When in doubt, seek professional legal help to decide how to proceed.

2. Take Your First Credit Counseling Class

According to the United States Bankruptcy Code, you must take a credit counseling course before and after you file your bankruptcy petition. These classes can help you avoid future debt and avoid filing for bankruptcy again.

Before you submit your petition, you must attend a one-hour credit counseling course. You can do so in person, online, or by telephone. The course is about an hour long and costs $50. You can request a fee waiver if you can't afford the class.

Once you complete the class, you'll get a certificate. You must submit a copy of this certificate to the court with your bankruptcy petition.

The Bankruptcy Courts also require that debtors take a financial education class before they get their bankruptcy discharge. This class is about two hours long and costs anywhere from $50 to $100. Again, you can request a fee waiver if you can't afford to register for the class.

This second class covers topics you'll need to address post-bankruptcy. These topics include the following:

• How to increase and maintain your credit score
• Repaying new credit card debt
• How to diversify the types of credit you apply for
• Setting a budget
• Money management
• Using credit cards responsibly
• How to read a credit report
• Where to seek debt relief/debt consolidation

These classes also answer frequently asked questions (FAQs) bankruptcy filers have before, during, and after their bankruptcy case. The courts and the bankruptcy trustees want to ensure that people who file bankruptcy don't have to file again in the future.

3. Create a Statement of Intention

You must complete a Statement of Intention form for a Chapter 7 bankruptcy. This form details your intentions with your secured debt — usually property like real estate or your car. For example, if your home is in foreclosure, you must notify the court whether you plan to surrender your home, negotiate a refinance, or achieve another resolution with the mortgage company.

If you filed a Chapter 13 bankruptcy, you will keep your property and repay it in the repayment plan. The lender must approve any repayment plan.

Your home and car may be exempt from bankruptcy under your state's bankruptcy exemptions. This means your bankruptcy trustee can't sell these assets to pay back your debt. A bankruptcy lawyer can help you understand your options to keep your home or vehicle.

4. File Bankruptcy

You will file for bankruptcy in your local bankruptcy court. This involves filling out forms and providing documents to verify your information and income. The court will give you a case number and assign a bankruptcy trustee to oversee your case.

Filing bankruptcy should immediately stop all creditors from calling or harassing you. This is an "automatic stay." Tell your attorney if you are still getting calls because the callers are breaking the law.

Chapter 7 bankruptcy does not stop new debt, child support, some tax debts, or student loans, so you need to be careful about spending money.

The most common types of debts filers include in their Chapter 7 bankruptcy are:

• Credit card debt
• Personal loans
• Overdrafted bank accounts
• Medical debt
• Automatic wage garnishment from your paycheck
• Creditors suing you for debt

Unfortunately, your credit score will take a dramatic hit once the court approves your bankruptcy filing. It will go way down, regardless of how good your credit was before the bankruptcy.

The banks will also shut down your credit cards so you cannot accumulate more debt. Once your bankruptcy is complete, you may be able to apply for new secured or prepaid credit cards.

5. Pay a Filing Fee

You must pay the filing fees before the court accepts your bankruptcy petition. The costs vary by state, but they are about $300 for a Chapter 7 or Chapter 13 bankruptcy. If you can't pay the fee upfront, you have 120 days to pay the total amount.

You can ask the bankruptcy court to extend the time to pay the fee. Typically, they'll allow you to stretch it out by making four payments. If the court approves your request, you will get a court order listing the due dates for each payment. You can't be late or miss these dates.

The court will only accept your bankruptcy case if you make these payments on time.

Once you have successfully filed your petition, bankruptcy proceedings will begin.

6. Prepare for Your Meeting of Creditors

Once the U.S. Bankruptcy Court assigns a bankruptcy trustee to your case, it will give you a list of documents to bring to your first meeting.

You should bring:

• Tax returns
• Paystubs
• Photo ID
• Social Security card
• Any other documents requested by the trustee

You need to provide information and documents as soon as possible. The trustee should give you a time frame, and you must comply with any "reasonable requests" they make. The court will dismiss your case if you refuse to provide this information or miss the submission deadlines.

7. Attend the Meeting of Creditors

Once the court receives your paperwork, it will schedule a 341 hearing. The courts call this hearing a meeting of creditors. Most creditors don't show up to this hearing.

In most cases, it will be just you and your bankruptcy trustee. You won't be in a courtroom, and there will not be a judge present. It's an informal, short meeting (around 10 minutes) to discuss your paperwork and decide if you are eligible for a Chapter 7 discharge of current debt.

Once this meeting is over, you may have more documents to send in, such as your tax return for the year. Aside from that, the trustee will send your creditors the correct documents about your bankruptcy, and you likely won't have to see your trustee again.

8. Take Your Second Credit Counseling Class

Once your case is approved, you must take a second course on financial management. You have 60 days to complete the second class and file a certificate of completion with the bankruptcy court. The 60-day time limit starts on the day of the creditor meeting.

9. Rebuilding Your Credit

If you file for Chapter 7, it will appear on your credit report history for a decade. A Chapter 13 bankruptcy only stays on your credit report for seven years.

You can rebuild your credit when the court approves your bankruptcy discharge. If you're careful and don't look at bankruptcy as a solution rather than a last resort, you should be able to rebuild your credit.

After your bankruptcy, you should start taking positive steps to avoid becoming mired in debt again. Some of these steps include:

• Find a secured credit card with favorable terms
• Pay your rent, car payment, and utilities on time
• Keep up with your credit card payments
• Be mindful of interest rates on new credit cards and loans
• Avoid a repossession at all costs

The goal is to improve your financial situation so you don't end up in bankruptcy court a few years later.

10. Make Any Necessary Changes

You must file an amendment with the bankruptcy court if anything changes during your bankruptcy. The same is true if you made a mistake or uncovered missing information. You can face perjury or bankruptcy fraud charges if you lie on these forms.

A bankruptcy attorney can help you and take legal action if creditors keep harassing you or there are mistakes on your credit report.

Seek Legal Advice Before Filing for Bankruptcy

If you're considering a Chapter 7 or 13 bankruptcy, it's a good idea to consult an experienced bankruptcy attorney. Your lawyer will review your financial situation and let you know if you qualify for bankruptcy. They'll also stand by you throughout the bankruptcy proceedings.

DIY Solutions:

• Bankruptcy Form Package
• Debt Settlement Agreement Forms