The Chapter 7 bankruptcy process in 7 steps: get a game plan, hire an attorney, gather the documents, take the credit counseling, review the information and file, go to the 341 Meeting, and receive your Discharge of Debts.
Get a Game Plan
Determine your financial goals. Think about what is most important to you and your family. Being realistic about your debts and how long they will take to pay off is critical.
Consider the alternatives.
Debt Settlement
You or a debt settlement company can negotiate with your creditors to try to settle your accounts for some percentage of what is owed. If you are successful in settling, the creditor will “charge off” the balance of the debt. Caution: charging off debt can lead to tax liability. Most of the time when you charge off debt, the creditor will send you a 1099 at the end of the year. This amount will be considered taxable income. There are exceptions to the taxability of this forgiven debt. Currently, debt forgiven on your principal residence is not taxable at least until 2012. If you are insolvent (you owe more than you own), the debt may not be taxable at least to the extent of the insolvency. Before you settle any debts, you should consider the tax ramifications. Consult your tax professional. You don’t want to trade unsecured debt for debt owed to the IRS! Debt that is discharged through bankruptcy is not a taxable event.
Debt Management
Beware of “debt management” companies. Often, the only thing they do is “manage” to keep you in debt. The same is true of debt consolidation. If you need to clean up your finances, you don’t need your debts pushed into a big pile. You need to get rid of them. The real problem with debt management companies is that they do not have any authority to force creditors to make a deal. True, some creditors will cooperate and agree to participate in a debt management plan. Others will not, particularly aggressive creditors like finance companies. If all creditors will not participate, this can torpedo your attempt to manage your debt because you end up getting sued by one or more nonparticipating creditors, resulting in being forced into bankruptcy after paying a debt management fee.
Chapter 7 Bankruptcy
Creditors are treated according to the law in bankruptcy. Creditors are not given a choice on whether they will agree to work with you or not. Unsecured debt, such as credit cards, medical debt, signature loans are wiped out in a Chapter 7 bankruptcy. Secured loans, where there is collateral and you need to keep the collateral, must be paid back. There are certain types of secured debt where you can void the lien against the collateral. Bankruptcy manages all the debt. In Chapter 7 bankruptcy, the process does not drag on for years and you know what to expect.
Only you can decide if bankruptcy is the right move for you. The main purpose of bankruptcy is to relieve you from overwhelming debt.
Hire an Attorney
Pick an experienced and competent attorney. This will make the process go smoothly. It will prevent surprises and you will be able to deal with potential complications before you file.
Gather the Documents
Your attorney can tell what documents are required in your case. This may include: tax returns, paycheck stubs, loan documents and current balances on bank accounts and assets. The most important thing to do is to list all of your creditors. It is also important to use a valid address for the creditor. Under the law, you have a right to rely on an address which is on a bill received within ninety days of filing bankruptcy. If the creditor lists a correspondence address or a bankruptcy address, this is the address your attorney will want. We recommend pulling a recent credit report just in case there are old bills or possibly small medical accounts that you are unaware are still being reported. This information is the meat and potatoes of the bankruptcy paperwork.
Take the Credit Counseling
This first class is required to file and can be taken by phone or on the web. You take the course from an organization that is approved by the bankruptcy court. It costs anywhere from $12 to $50 dollars.
Review the Information and File
Make sure you included everything and that the information is accurate. Sign the paperwork and file it. You will be given a case number and be placed under the protection of the automatic stay. The automatic stay is a Court Order which immediately goes into effect and orders all creditors to stop all attempts to collect a debt from you or your property.
The court will notify your creditors of the bankruptcy and the calls will stop.
After filing, take the second required class called Personal Financial Management.
Go to the 341 Meeting
Formally known as the “341 Meeting of Creditors”, this is usually the only appearance you will be required to make in bankruptcy. It is much less scary than most people think, with many of meetings lasting only 5 minutes. Ironically, it is named the “Meeting of Creditors” even though it is common for no creditors to show up.
Discharge of Debts
This is the goal of the entire process. It is a Court Order stating that through the authority of the court, your debts are discharged – which means no longer collectible, eliminated, removed, destroyed, erased, tabla rasa, blank slate, fresh start. However you want to say it, they’re gone.
Congratulations, you will join the millions of Americans granted well-deserved relief from the burden of overwhelming debt. You can go on with your life and enjoy your freedom!
Get a Free Bankruptcy Consultation
Most bankruptcy attorneys offer a free consultation to advise you on whether to file and what it would mean in your situation. If you are overwhelmed by debt and don’t know if you can realistically pay it off, please ask an attorney for a free consultation. It won’t cost you anything and can empower you with the knowledge about your right to freedom through bankruptcy.
If you live in East Texas, call our firm at (903)759-5922 or use our website to schedule your free consultation. We serve Camp, Cass, Gregg, Harrison, Marion, Morris, Panola, Rusk, Smith, Wood, Upshur, and Van Zandt counties.