Filing for bankruptcy is normally thought of as a last resort. Most of the time we try so hard to resolve our debt issues on our own as best we can because the consequences of filing for bankruptcy last for such a long time. But sometimes going this rout is what is needed to get out of the hole. So now that you have decided that filing for bankruptcy is your only option, what’s next? Here is how bankruptcy works and the steps that are needed for you to take


What chapter if bankruptcy is right for you

The two most common types that are filed are chapter 7 and chapter 13. Understanding the difference in the two can be helpful when deciding what to file for. Chapter 7 is when you have to liquidate your assets to pay off your creditors that you have secured debt with. The unsecured debt you have left, including credit cards or medical bills, will be erased if the court rules you unable to pay. The court will ultimately decide if you are capable of paying a portion or the entirety of your debts by looking into all aspects of your finances like your bank accounts and your current job if you are employed. Chapter 13 bankruptcy involves the court approving a plan for you to pay back an agreed upon portion of your debt over the next three to five years. With this type of bankruptcy you are on a strict budget set by the court so you can get out of debt while still keeping your assets. 


Decide if you need a lawyer

You can in fact file for bankruptcy on your own, but if it is your first time it can be intimidating to go through the steps by yourself. Getting a lawyer who deals with this type of work can be helpful because they will know the ins and outs and know how to negotiate for the best possible outcome. This can relive a ton of stress by not having to go through all the steps alone and having an experienced person walk you through the process.

 lawyer talking with a woman 

Bankruptcy counseling sessions

No matter which chapter bankruptcy you have decided to file, you will have to attend two mandatory credit counseling sessions done at an agency approved by the court. The first counseling session will be before you file your bankruptcy paperwork with the court, officially starting the process. There you will discuss your financial state and decide if declaring bankruptcy is really the best option before you begin the process. They offer some alternatives that can be less harmful to your credit at this session. The second session of counseling is done after you file with the court. It is a debt education course that must be completed before your debts are discharged.


Filing with the court

After you have officially filed for bankruptcy with the court, it will then appear on your credit. This will then ensure that your creditors that you owe money to will stop calling or contacting you because bankruptcy invokes what is called an “automatic stay”. This stops all legal action from taking place as your debts to them are currently being sorted out.


Repayment schedule or liquidation of assets

Depending on what chapter you filed at this point you will begin liquidating the assets agreed upon if you have filed for chapter 7, or you will receive your repayment schedule you have filed for chapter 13. If you have any secured debts like your car or house at this time you must keep making the payments for them if you do not want to lose them.


Discharge of debt

At this point, all eligible debts will be discharged and you are now no longer obligated to pay the creditors that are involved with the bankruptcy. If you are on a repayment plan, this is when you start making those payments.

 After you have reached the end of your bankruptcy journey now comes the really difficult part, the rebuilding process. Bankruptcy stays on your credit report for up to ten years so it will lower your score, potentially making it difficult to get credit in the future. This can also raise your interest rates. Now that you have a clean slate you can start improving your budgeting habits which will improve your credit score and raise it overtime. Putting these new habits into effect will help you stay out of debt and be more financially independent.

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