March 18, 2010

Declaring Bankruptcy – what’s really involved?

Posted in Bankruptcy tagged at 6:24 pm by demetriagraves

Some clients I have spoken to, have the idea that you just declare bankruptcy and that solves all your financial problems. Suddenly the slate is wiped clean, with a simple declaration and there’s nothing else to worry about. Unfortunately the process is a little more involved than just the declaration of bankruptcy. So what is really involved in “declaring bankruptcy”?

Before doing anything, I’d recommend consulting with an experienced attorney who is familiar with handling bankruptcy. They’ll be able to go over the steps in detail and give you an outline of all the evidence and paperwork that needs to be compiled. But in a nutshell, here’s a brief outline of the process of declaring bankruptcy. First, you must file a petition with the United States Bankruptcy Court located for the district in the state in which you live.  The petition is a fairly straight-forward document with basic information about you.

Attached to that petition, you must file a Statement of Financial Affairs.  This document sets out financial information such as income that you have earned year-to-date; last year and the year before.  It will also require you to list any business income that you may have received or other type of income such as Social Security payments, child support payments and other sources of income.  You will also be required to list payments made to your creditors within certain time frames.  You will need to list any charitable contributions; whether you closed any financial accounts and the amount contained in those accounts.  You must also list any property that you transferred within certain time frames.

Additionally, you must file a series of schedules.  These schedules list a variety of information including your assets, a list of creditors, and income/expenses.  A detailed listing of your assets is critical because you are under an obligation to list your assets and if you want to protect your assets to the maximum extent available, you must list them.  You are required to state your income on a schedule and your expenses.  A listing of your creditors is also required divided up into secured creditors (creditors with collateral securing the obligation), unsecured creditors, and priority creditors–usually tax claims, child support obligations and other claims.

You must also file a Statement of Current Monthly Income (Form B22A or B22C).  You will need your paychecks or other evidence of income for the six months prior to the month you file to calculate your current monthly income.  If your income exceeds the median income for your state, you may have to complete the “means test”.  After completing the “means test” calculations, if applicable, you determine if you are eligible to file a chapter 7 and/or to see what amount of money must be paid to your unsecured creditors under a chapter 13 plan.

You can see, just from the above, there is a lot of information to compile for the court.  And we have not even gone to court, yet?

After these documents are filed, a creditors’ meeting is scheduled approximately four weeks after you file your petition.  At that meeting, you will meet with the trustee who will examine your case to ensure all is in order.  Your trustee is also looking for assets that can be liquidated or sold to pay your creditors if a chapter 7 case or to see that your plan complies with the Bankruptcy Code.  If all is in order, then, if you are in a chapter 7 case, your case will ultimately go to a discharge and your debts eliminated.  If you are in a chapter 13, you continue to pay your money to the trustee and once all the payments are made, your debts will be discharged and your mortgage current if included in the plan.

As you can see, there is far, far more required of a bankruptcy filing, than even most people realize.  If you are facing debt issues, it is worthwhile to consult with experienced bankruptcy attorney. I offer a free confidential initial consultation, where you can get your questions answered and you’ll be better informed of all your options.

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