How to File for Bankruptcy

There’s no shame in having debt or getting assistance with your finances. Often, talking to a credit counselor and getting on a debt management plan is enough to get people back on track. Some people may need to sell assets to avoid bankruptcy, and everyone should try reevaluating their budget to see if they can prevent bankruptcy. Ultimately, the process is costly and destroys your credit, so bankruptcy should be considered a last resort. But if you’ve determined that better alternatives aren’t available for your situation, you should learn everything you can about bankruptcy before starting the process. Here’s what you need to know.

How Much Does Bankruptcy Cost?

The amount you’ll pay will depend on whether you hire an attorney and the costs in your area, but below are the filing fees, along with the average attorney cost found in a 2016 Martindale-Nolo study:

	Chapter 7	Chapter 13
Filing Fees	$338	$313
Attorney Fees	$1,450	$3,000

Can I File for Bankruptcy without an Attorney?

It’s possible to file for bankruptcy individually without the help of a lawyer. This is known as filing pro se. The nonprofit Upsolve also has free resources that make it easier to file on your own. But bankruptcy is a complex process with important financial ramifications, so hiring an attorney is strongly encouraged by the United States Courts. Depending on your financial situation, you may qualify for free legal help. Check out the following resources if you’re looking for a lawyer:

• American Bar Association’s Legal Help
• Legal Services Corporation

What Debts Will Be Discharged in Bankruptcy?

When you file for bankruptcy, most of your debts will be discharged, which means you’ll be relieved of your obligation to repay the creditor. However, some debts aren’t dischargeable in bankruptcy.

	Chapter 7	Chapter 13
Dischargeable	Credit card debt Accounts in collections Medical bills Personal loans Past-due utility bills Past-due rent Business debts Student loans, but only if you can prove undue hardship Auto accident claims (unless drunk driving related Civil judgments (except those based on fraud) Taxes past a number of years Attorney fees (except child support and alimony)	Everything that can be discharged in Chapter 7, plus: Outstanding debts from prior bankruptcy Debts from willful or malicious property damage Debts incurred in a divorce proceeding, not including alimony or child support Housing association fees that become due after filing Retirement account loans Fines owed to the government that aren’t criminal
Nondischargeable	Alimony and child support Recent unpaid taxes Debts for willful or malicious injury of a person or damage to their property Debts for personal injury in a drunk driving accident caused by the debtor Debts not listed in your bankruptcy paperwork Student loans, unless you can prove undue hardship Housing association fees Debts not discharged in prior bankruptcy	Alimony and child support Recent unpaid taxes Debts for willful or malicious injury of a person Debts for personal injury in a drunk driving accident caused by the debtor Debts not listed in your bankruptcy paperwork Student loans, unless you can prove undue hardship

Can I Keep Any Assets?

Yes. There are variations by state in what’s allowed, but you can generally keep property you’ve bought with a secured loan, such as your house and car. Your retirement accounts and household goods and clothing will also typically be exempt, and some states also have exemptions for jewelry or an item of your choice. You should research exemption limits and rules in your state before filing.

How Will Bankruptcy Affect My Credit?

Chapter 7 bankruptcy remains on your credit report for 10 years, while chapter 13 bankruptcy sticks for seven years. The effect on your score may vary, but you can expect a good credit score to drop at least 200 points and a fair credit score to drop 130-150 points after filing for bankruptcy. Chapter 7 bankruptcy generally has a greater impact on your score than chapter 13 bankruptcy and is also more difficult to recover from. With time, you’ll see your score increase again as you make on-time payments and keep your credit utilization low. But you may have difficulty getting approved for credit while a bankruptcy appears on your credit report. That’s why bankruptcy should always be viewed as a last resort.

How to File for Bankruptcy

Choose Chapter 7 or Chapter 13 Bankruptcy

Deciding between chapter 7 and chapter 13 bankruptcy will involve determining what you qualify for, evaluating your debts, and getting advice from your attorney. If your income is less than the median for your household size in your state, you automatically qualify for chapter 7 bankruptcy. If your household income is greater than the median in your state, you’ll need to prove that you don’t have enough disposable income to repay some of your unsecured debts in order to qualify for chapter 7 bankruptcy. To qualify for chapter 13 bankruptcy, you can’t have more than $394,725 in unsecured debts or $1,184,200 in secured debts. There are advantages and drawbacks to both chapter 7 and chapter 13 bankruptcy. Chapter 7 bankruptcy allows you to wipe away your debts in as little as three months, while filing for chapter 13 bankruptcy requires a three to five-year payment plan. But chapter 13 bankruptcy allows you to keep your property, while a trustee can sell your non-exempt assets to cover your debts during chapter 7 proceedings.

Gather the Required Documents

You will need:

• A copy of your credit report, which you can get free at AnnualCreditReport.com
• A list of debts not listed on your credit report, including medical bills and payday loans
• Tax returns for the past two years
• Proof of income for the last six months
• Recent account statements for your checking and savings, retirement, and brokerage accounts
• Real estate valuations for property you own
• A copy of your vehicle registration

Take Credit Counseling

The law requires that applicants for chapter 7 or chapter 13 bankruptcy take a credit counseling course within six months prior to filing. You must register for the course with a government-approved credit counseling agency, and you’ll need to pay $10 to $50 for the course, unless your income falls below 150 percent of the federal poverty line. The purpose of the course is to help you understand your financial situation and determine if you would be able to get back on track through a repayment plan or other bankruptcy alternative. It will take at least an hour of your time. Hold onto your certificate of completion, since you’ll need to submit it along with your bankruptcy forms.

File Your Forms and Pay the Filing Fee

The next step is to download, print, and fill out all the required bankruptcy forms and submit them with your filing fee. If you’re working with an attorney, they’ll fill out the forms for you. If you can’t afford to pay the filing fee, you can apply for a waiver, but your income will need to be less than 150 percent of the federal poverty line. Go to your local courthouse and inform the clerk that you plan to file for bankruptcy. You’ll need to submit the petition forms, your credit counseling certificate, and your paycheck stubs. Hold on to your tax returns and account statements, since you’ll deliver these to your trustee after the case is filed. Once your case is filed, the clerk will give you your bankruptcy case number, your trustee’s name, and the location and date/time for your 341 meeting or meeting of the creditors.

Send Documents to Your Trustee

Your trustee will contact you by mail following your case filing to request certain financial documents. You’ll need to mail your bank statements, tax returns, and anything else the trustee asks for if you want your debts to be discharged.

Complete a Debtor Education Course

The next step is to take a debtor education course from a credit counseling agency approved by the Department of Justice. You’ll pay a $10-$50 fee again unless you qualify for a waiver, and the course typically takes at least two hours to complete. You’ll learn how to keep a budget and avoid high interest debt in the future. Passing the course is required in order to have your debts discharged.

Attend Your Meeting of the Creditors

Your meeting of the creditors, or 341 meeting, will take place about a month after you file for bankruptcy. The meeting details will be listed on your court notice. When you go to your 341 meeting, be sure to bring a government-issued photo ID and your social security card so the trustee can verify your identity. Most 341 meetings only last a few minutes. Creditors are invited to attend and can ask you questions, but this is a rare occurrence. When the trustee or creditors ask you questions, you’ll be under oath. Most questions will pertain to your current financial situation, such as your income and whether you’ll receive a tax return for the current year.

Decide What to Do About Your Car Loan

If you still have an auto loan, you’ll have the option to surrender your vehicle to discharge the debt, reaffirm the loan and continue making payments, or buy the car outright. Reaffirming the debt means you will still be liable for payments despite having your other debts discharged in bankruptcy.

Rebuild Your Credit

Once your debts have been discharged in bankruptcy, you’ll need to focus on getting back on solid ground financially and rebuilding your credit. Create a budget based on your income that outlines what you can spend each month on a given category of purchases. And work on stashing some money away in an emergency fund. This will be especially important given that it can be difficult to get a loan after you’ve filed for bankruptcy. If you have any outstanding debts left from your chapter 7 bankruptcy, be sure to make your payments on time. And if you enter into a payment plan under a chapter 13 bankruptcy, ensure that your budget allows for on-time payments. This will help boost your credit score after the initial drop. You should also keep your debt balances low and make payments multiple times throughout the month if you have a low credit limit. That’s because the amount of available credit you are using will significantly affect your score. Make sure that the bankruptcy is removed from your credit report at the appropriate time. When that happens, you can apply for new credit to help boost your score. You may also want to consider Experian Boost to get credit for your on-time utility and telecommunications payments. Finally, avoid high-interest debt in the future. Though you can get a payday loan without a credit check, the triple-digit interest rates will hinder your financial potential. Focus on saving more and spending less instead.