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How to declare bankruptcy in the USA in 2020: a step-by-step guide

Temporary debt relief occurs immediately for all types of bankruptcy, since automatic suspension prevents creditors from contacting you as soon as you or your bankruptcy attorney start a business. It also immediately stops the seizure, writes Upsolve.

Photo: Shutterstock

Bankruptcy under Chapter 7 of the United States Bankruptcy Code is a very effective tool for removing credit card debt, medical debts and most other unsecured debts. But you can use it only once every 8 years.

Chapter 13 bankruptcy is another type of bankruptcy available to consumers. The main difference between chapter 7 and chapter 13 is that you pay off some of your debts by paying monthly payments to the trustee. You pay only as much as you can based on verification of funds and actual income and expenses, excluding interest rates on unsecured debt.

Debts such as student loans, child support, and recent tax debts will not be eliminated if your bankruptcy is approved by a court. In addition, if you have any co-debtors, they will not be protected by your personal bankruptcy proceedings.

Depending on the credit rating of the applicant in bankruptcy in accordance with Chapter 7, it may decrease slightly. However, most people can recover their credit rating in less than a year. In the United States, in 96% of all cases of consumer bankruptcy under chapter 7, individuals can retain all of their property even after filing for bankruptcy.

1. Collect documents

Before you begin, you need to collect all financial documents in order to understand the current state of your finances.

First, you need to get a copy of your credit report at Experian, TransUnion or Equifaxto find out how much you owe. You can get your credit report from all three sources for free once a year.

Some debts may not appear on your credit report, such as medical bills, personal loans, or tax debts. Make a list of all outstanding debts, as you will need to list them all in your bankruptcy forms.

In addition to the credit report, you will need:

  • tax returns for the last 2 years;
  • paid receipts or other evidence of your income for the last 6 months;
  • recent bank account statements;
  • recent retirement or brokerage account statements;
  • valuation of any property you own;
  • copies of car registration;
  • any other documents regarding your assets, debts or income.
  • Having these documents will help you get an accurate picture of your finances.

2. Get a credit consultation

An important first step to the bankruptcy process is credit counseling. Anyone who files for bankruptcy is required to go through credit counseling courseapproved by the Department of Justice. Such courses give you an idea of ​​whether you really need to file for bankruptcy or if you could improve the situation with an informal repayment plan.

You will provide your income and expenses to the credit counseling agency. Together, you will consider debt repayment options, such as debt consolidation or debt settlement. In many cases, this will only confirm that you have no other options for solving the debt problem other than bankruptcy. But this consultation is still important.

The course takes at least one hour and can be completed via the Internet or by phone. Cost varies from $ 10 to $ 50, depending on the agency. But if your family’s income is less than 150% of the federal poverty line, you can not pay. After completing the course, you will receive a certificate. Keep it to yourself - you will need to provide a copy of this certificate to court when you file your bankruptcy forms in step five.

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3. Fill out the required forms

This is the most time-consuming step. Bankruptcy forms required include 23 separate documents totaling about 70 pages. They ask you about everything that you do, spend what you own and what you should.

You can download all forms for free and fill them out either on a computer or print and fill out manually. This is by far the most important step in the process, so make sure you take your time and answer all the questions completely and truthfully, based on the instructions provided.

If you hire a lawyer, he will fill out a form for you based on the information you provide. If you cannot afford to hire a lawyer, but cannot fill out the forms yourself, check if you have the right to use the free bankruptcy service Upsolve, or make an appointment with a legal aid representative in your area.

4. Pay the registration fee

Chapter 7 usually requires a fee of $ 335 to file for bankruptcy, which must be filed with the court, usually in the form of a cashier's check. Some courts accept cash, but not all.

If you currently do not have the means to pay the application fee, you can fill out a special form requesting you to pay the installment fee. You can ask to split the fee of $ 335 up to 4 payments within 120 days from the filing date.

If installment payment is not possible, you can submit another form to cancel the payment. To qualify, your total household income must be below 150% of the federal poverty line. The court will decide whether you will receive a waiver of duty after filing the application. If your application is rejected, the court will usually order you to pay the installment fee.

5. Print the forms

After you have prepared the forms, you will need to print them out for trial. Choose single-sided printing. The court will not accept documents printed on both sides of the sheets.

You will also need to sign the forms after they are printed.

Most bankruptcy courts require only one copy of the application (signed original), but some courts, such as the Manhattan Bankruptcy Court, require 4 copies. So call local bankruptcy courtto find out how many copies you will need to bring.

6. Go to court and file forms

As soon as you enter your door local courthouse, you will be met by security guards who will ask you to go through the metal detector. After going through the security, you will go to the clerk’s office and say: “I would like to file for bankruptcy under chapter 7”. You will give the clerk a bankruptcy form along with your $ 335 fee. Or, if you are applying for an exemption from payment of a fee or an installment plan, instead of money, you will give him a form of refusal to pay a fee or an installment plan.

The clerk will take the forms and ask you to take a seat in the waiting room. The process of reviewing your case will not take much of the clerk's time - about 15 minutes. During this time, your forms will be scanned and uploaded to the court registration system.

As soon as the processing of your forms is completed, the clerk will call you to the front desk and issue:

  • the number of your bankruptcy case;
  • The name of your bankruptcy trustee
  • the date, time and place of your meeting with your manager (this is called a “meeting of creditors” or “meeting 341”).

So, you filed the case. Congratulations, you have taken a very important step! Now your debt collectors are forbidden to suspend this procedure, contact you to collect a debt, collect your salary or seize property. This will last until the end of your bankruptcy case, and at this point most, if not all, of your debts will be canceled.

But you're not done yet - there are other steps that need to be taken.

7. Send documents to your manager

The bankruptcy commissioner is the official appointed by the court to oversee your case. Pay attention to the mail that you receive from him after submitting the application. The manager will send you a letter asking you to mail certain financial documents, such as tax returns, payment receipts, and bank statements. If you do not submit the requested documents by following the instructions in the letter, you will not be able to pay off your debts.

8. Take Bankruptcy Course No. 2

As soon as possible after submitting a bankruptcy form, you must complete the second required course. It is called “Debtors Training Course” or “Financial Management” and is similar to a credit counseling course. But it is intended to teach you to make the right financial decisions so that you do not have to seek help in bankruptcy in the future.

The course can be completed online or by phone and takes at least 2 hours. The cost of the course varies from $ 10 to $ 50, but the fee may be canceled if your family's income is below 150% of the federal poverty level.

If you do not complete the course, you will not reset debts. Therefore, be sure to complete the course as soon as possible after applying.

9. Attend meeting 341

Lastly, you need to attend meeting 341. Its place depends on where you filed for bankruptcy.

Usually the 341 meeting takes place about a month after the application is submitted. The main goal is to make sure that you are not hiding expensive assets that need to be distributed to lenders. If your documents have been executed correctly, you should have no problem answering questions. Most meetings only last about 5 minutes. Lenders are allowed to attend, although they almost never do so.

Important Note: You must bring your ID and social security card. If you do not bring them, the manager will not be able to confirm your identity, and the meeting will not continue. You must also bring a copy of your bankruptcy forms and payment receipts 60 days in advance, your latest bank statements, and any other documents your manager has requested.

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10. Optional: if a car with a debt is involved

There is one more step in the bankruptcy process if you have a car with outstanding debt. If you want to transfer the car to the creditor and pay off the debt, the creditor will file a petition for bankruptcy court with a request for permission to re-purchase the car.

Alternatively, you can leave the car, confirming the debt and continuing to pay on it. In this case, your lender usually sends you a confirmation agreement, which must be signed and returned within 45 days after your meeting 341. The lender then submits the signed agreement to the court for approval. If the judge approves the document, you will still be responsible for paying the loan balance.

Finally, you can also choose the option of buying a car from a lender for the current value. This payment must be made in a lump sum, usually received from a lender, such as 722redemption.com. If you choose a ransom, you will need to file a bankruptcy petition.

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