How to declare bankruptcy in the USA
Insolvency law is a set of federal laws that allow one to get rid of debts and start from scratch. It is important to understand the advantages and disadvantages of an insolvency declaration. Resource WikiHow helps to figure out when to declare yourself bankrupt, what types of bankruptcy are and how to get debt relief.
Bankruptcy Decision Making
- Consider all the options. Declaring yourself bankrupt should only be used as a last resort. Before you apply, try other ways to pay off debts. Contact your creditors and try to persuade them to pay off the loan or restructure it for smaller payments. Alternatively, you can try to sell your assets without coverage only in the case that it is not unprofitable than your loan. Or consult a debt management agency before declaring yourself bankrupt.
- Analyze your debt. Some debts cannot be written off, even if you declare insolvency. Group your debts into categories and calculate how much falls into the category that can not be written off. If there is a large part of the debt, then bankruptcy will not solve your problem. Consider that each state has its own rules on which assets do not fall under the possibility of bankruptcy. Check the state laws governing this matter.
The debts indicated below cannot be repaid through bankruptcy proceedings:
- Child allowance
- Debts incurred after bankruptcy
- Some of the debts acquired 6 months before declaring bankruptcy
- Fraudulent Debts
- Debts acquired due to personal injury while intoxicated
- Debts due to voluntary malicious damage to a person or property
- Some student debts
- Some taxes
- Secured loans, since the lender has the right to foreclose on the capital of the borrower.
- Find out which assets are not eligible for bankruptcy. Under the insolvency procedure, you will withdraw and sell all valuable assets to pay debts to creditors. However, some assets are protected by state law. This category depends on the type of bankruptcy you have chosen and the state of residence. Assets can be protected in whole or in part, within a certain amount. For example, there may be an exception for cars that cost up to $ 5 000. This means that you can leave the car for $ 4 000, but not for $ 20 000.
As a rule, the law protects such assets: cars, wedding rings and your home, and in some states there is a rule that you can keep yourself valuables for a certain amount.
Bankruptcy does not allow you to leave all assets, but at the same time you can reduce your debt to creditors by selling expensive assets.
- You must understand that bankruptcy does not abolish debt for your co-sponsors. A facilitator is a person who agrees to pay your debt in case you become insolvent. For example, a parent may sign a car loan agreement for a child after his graduation from college, because the graduate does not yet have a credit history (or it is not enough). If the borrower declares himself bankrupt, then the person who signed the loan agreement with him is obliged by law to repay the loan. That is, the burden of debt for the car will fall on the parent graduate, if he declares himself bankrupt.
- Learn more about the different types of bankruptcy. Insolvency in the US is handled by a federal court in accordance with the US Bankruptcy Code. There are several different types of insolvency in this Code. They are named after the chapter in which they are written.
- Individuals and companies may declare themselves bankrupt on the head of 7 (see below). In this case, the property is liquidated to repay the debt to creditors. A secured debt can be written off, or you can be given a choice: your property will be confiscated or you will pay the lender a one-time amount equal to the current value of the property. To qualify for a Chapter 7, your earnings must be below a certain level.
- The head of 13, also known as “bankruptcy with preservation of property”, allows you, provided you have a reliable source of income, to offer your creditors a repayment plan for the next 3-5 years. Your debt must be below $ 1 149 525 (secured debt) and below $ 383 175 (unsecured debt). Note that the amount your creditors will receive is determined based on your income after a bankruptcy is declared, and it will not be equal to the amount of your current debt.
- Municipalities — cities, towns, villages, tax districts, utilities, and school districts — can be reorganized under Chapter 9.
- Companies can be reorganized as unprofitable, according to Chapter 11, or liquidated according to Chapter 7.
- Chapter 12 is similar to Chapter 13 (see below). It is intended for companies whose 80% debt is derived from family farm or fishing operations.
- Understand the effects of bankruptcy. Find out which types of debt may be written off and which ones may not. Find out how your bankruptcy will affect those who signed loan agreements with you. Decide if you can continue to live with the negative effects of bankruptcy on your credit history. Find out if you are eligible for bankruptcy at all.
- The effect of declaring yourself insolvent on your credit history is initially determined by how good it is. If you have a good credit score, it is likely to fall significantly. If your credit score is not very good, bankruptcy will not greatly affect it.
- The more accounts associated with filing for bankruptcy, the more it will affect your credit score.
- If you declare yourself insolvent under Chapter 7 or 11, this will be listed in your credit report up to 10 years. If you are applying for Chapter 13, then up to seven years.
- Bankruptcy on the head of 11 is recorded in the credit report of the company, and not physical person, if it is declared for the company.
Bankruptcy by Head 7
- Consider hiring a bankruptcy lawyer. This is optional, but recommended. Filing for insolvency is a very complicated process, and you are unlikely to succeed without a lawyer. For those who can not afford a specialist, there is free legal assistance. You can contact the American Bar Association (American bar association) or the Legal Aid Corporation (Legal Services Corporation), to help you find a lawyer.
- Filing without a lawyer is called pro se (for myself). If you decide to move pro se, the court may allow professionals without legal education to help you. They usually help with documents, but do not answer legal questions and do not provide legal services. Since they do not represent you, they cannot sign anything on your behalf or receive payment for ship services.
- In the US, 90 bankruptcy districts operate, each of which has a bankruptcy court. Each state has one or more districts.
- Find out if you meet the requirements of Chapter 7. One of the basic requirements - your income must be below a certain level. If, after all the monthly costs, you still have a portion of the income, you must file for insolvency under Chapter 13 and agree to pay off the debt to the creditors. To determine if you meet the requirements of the 7 chapter, take the “availability test” ('means test'), consisting of a sequence of several forms to fill out.
- You may not have to fill out all forms. Depending on the answers on the first form, you will find out whether you need to fill in the rest.
- Download form 22А-1 from the website of the American court. Under this form, you calculate your income and compare it with the average income in your state for your family size. If your income is below the state average, then you fall under the requirements of the Head of 7. If not, go to the form 22A-2.
- Download form 22А-2 from the website of the American court. This form analyzes your income in depth to determine if you are eligible for the Chapter 7.
- Download additional form 22А-1Supp. It determines if you can free you from having a test about the availability of funds, if the majority of your debts are business expenses or you recently did military service.
- Fill out bankruptcy forms. These documents list all of your property, debts, income, and court costs. You will have to fill a huge number of documentsincluding bankruptcy filings, several schedules and other forms. They can all be downloaded from American court website.
- To write off debts, they need to be considered in the submitted documents. If you do not specify a debt, it will be charged to you after bankruptcy.
- Fill out bankruptcy forms. Submission of forms is the official start of your business. If you use a lawyer, he or she can file forms on your behalf. If you represent yourself, then you are responsible for bringing documents with you to court.
- Get a property manager. After you submit the forms, the court will assign you a property manager. He will work on behalf of your creditors and be responsible for ensuring that the information in your insolvency documents is true. This person will also determine how much of your property you can keep. Each state has its own rules governing how much property can be left in liquidation under Chapter 7.
Specifically, in your case the decision is made by the manager. He also seizes property that is not subject to exclusion.
The bankruptcy judge is the chairman of the bankruptcy court. He or she makes decisions in your case concerning eligibility and debt relief. The debtor, as a rule, does not need to go to court - the process is administrative in nature, and most issues are decided outside the court by your managers.
- Go through credit counseling. Anyone filing for insolvency must complete a credit counseling course. Before you write off your debts, you must submit to the court a document on the course of training, and necessarily from an accredited organization (according to the program US Trustee Program).
- Find an accredited organization providing credit counseling, help the Ministry of Justice.
- Attend a 341 meeting. You will need to attend a formal meeting of creditors, usually in the office of your property manager. This meeting is called an “341 meeting”, according to the article number of the bankruptcy code. At this meeting, borrowers communicate directly with creditors and answer their questions about debts and property. The meeting usually takes place a month after your submission of documents. Your property manager will ask you about your debts and the reasons for filing for the declaration of insolvency. The meeting will conclude an agreement on the sale of your property, which is not subject to abandonment, as well as an agreement on the fate of your property, which is the key to secured loans.
Bankruptcy on Chapter 13
- Check, go through whether you by requirements Chapter 13. Companies cannot be eligible for heading 13, even if you are the sole owner. To pass through Chapter 13, you need: to have a certain net income (after taxes), to have not too much debt. You do not go through Chapter 13 if your secured debts exceed $ 1 149 525. You must also have no tax arrears and prove that you filed income declarations to federal and state agencies for the last 4 of the year.
- Fill out all the documents. List all requested financial data, including income. Rate your property. Register your debt payment plan. The forms for Chapter 13 are the same as for Chapter 7, their can be downloaded from the site American court.
- Submit your documents to the court. In your case, a property manager will be appointed, but you must remember that he or she does not represent you, but your creditors. The job of this person is to check the information you provide, including on the subject of fraud, and to manage the bankruptcy procedure. If you need a representative in this matter, hire a lawyer. But this is optional.
- Visit 2 Hearing. About a month after submitting the documents, you will be scheduled to meet with your creditors. She will be held by the property manager for your case. You will answer questions about your debt and discuss the terms of its repayment. Shortly after the meeting, you will be invited to a hearing where the bankruptcy judge will approve your debt repayment plan.
Get debt relief
- Learn what debt relief (bankruptcy) is. If the court grants you bankruptcy relief, you are no longer legally obligated to repay some debts. Such a decision is of permanent force. Lenders are no longer entitled to sue you or demand payment of a debt. They do not even have the right to communicate with you about this duty.
- If nobody protests against release from bankruptcy, they provide it automatically. Lenders, borrowers and their lawyers receive a copy of the debt relief document.
- Find out when to expect a decision on bankruptcy relief. As a rule, the time for making a decision depends on the type of bankruptcy for which you applied. The court may refuse to pay debts if the applicant has failed credit counseling. An exception may be made to this rule in some cases: if the debtor is a person with disabilities or serves in the army.
- In the case of Chapter 7, a bankruptcy exemption can be granted 60 days after the first 341 meeting, that is, approximately 4 a month after filing for bankruptcy. This process may take longer if the lender contests the bankruptcy exemption or submits an application for closing the case.
- In the case of Chapter 13, the court grants debt relief as soon as the borrower repays all agreed debts. Since 3 and 5 are relegated to it for years, bankruptcy relief should be expected no earlier than several years after the submission of documents.
- Prepare for the fact that some debts can not be written off. Debts that can be written off depend on the type of bankruptcy you are applying for. The US Congress determines which debts are non-deductible. They will need to pay in any case.
- Categories of debts that cannot be written off: some taxes, child care and alimony, debts for damages to the health of the person, student debts and debts for drunk driving.
- There are debts that can be written off in Chapter 13, but not in other chapters. This includes some taxes, debts for damage to health, as well as debts received from the separation of property upon divorce. The applicant may also apply for exemption from liability due to excessive burdensomeness, if he does not cope with the planned payments due to reasons that he does not control.
- Accept the fact that debts may not be written off. Creditors can appeal against debt relief and file a bankruptcy complaint with a court. This is called claim proceedings. The court may refuse to write off the debt if you delay the process or interfere with it. For example, they will refuse to write you off if you do not file the necessary documents, do not undergo counseling, intentionally destroy or hide the property data or give false testimony.
Debt relief may be waived if the court determines that you got it fraudulently. As a rule, this occurs within a year after the award is granted.
- Think about paying off some written off debts. You can pay off some of your written off debts voluntarily, despite the fact that they cannot be recovered from you by law. For example, if you owe a family member, you can repay a debt. Or someone whose opinions are important to you. Or pay the written off debt for the treatment of a family doctor.
- Keep copies of bankruptcy court papers. They will be useful to you for personal business - for example, in the event that creditors try to collect old debts from you.
Overcoming the effects of bankruptcy
- Make a budget. Develop a real financial plan for your expenses. Pay bills on time. Stick to the budget with all your might. Do not collect new debts. Establish a reserve fund that will help you cover unforeseen expenses.
- You can connect the automatic payment of bills, so as not to miss it.
- Live more modest. Reduce your costs where possible. Pay less for food and household goods. Shop for cash only. If you filed for bankruptcy under Chapter 13, then you must spend within the budget prescribed by the court for the period you pay your debts. You will not be given a loan for a car or a credit card without the permission of the court.
- Get a secured credit card. Such a card is issued for a deposit of a certain amount in a bank account. This also sets your cost limit. Put a small amount on this account every month. Pay your bills on time. Secured credit card helps to renew credit score. For some cards for timely repayment the limit increases without an additional deposit.
- Understand how bankruptcy will affect your credit. Renewal of credit history after bankruptcy can happen faster than you expect. You can even get a mortgage from the Federal Housing Administration. You will receive offers to open credit cards. You can get other loans, including a car, at good interest rates. Bankruptcy will be recorded in your credit history for another 10 years, but you can resume your credit score faster if you make all payments on time.
- View your credit history. Each year, you can receive one free credit history statement. View it and check for errors. Make sure that the debts that you have paid (or written off) are no longer your account. Look for errors in the accounts balance. Check for debts that are not yours. If you find a mistake, submit an application to the credit agency that provided the report.
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