Filing For Bankruptcy

The basics on how to file for bankruptcy

The need to file for bankruptcy is a financial situation you'll want to avoid if at all possible. However, in our credit-driven society, people can get in over their heads before they know it, and suddenly, filing for bankruptcy becomes the only viable option. If you find yourself in this situation, you should learn the basics about filing for bankruptcy before you go to the effort and expense of hiring an attorney. If yours is a simple case, you can file on your own.

The U.S. Code Chapters Covering Bankruptcy

If you're preparing a filing, you'll hear the terms "Chapter 7 bankruptcy," "Chapter 11 bankruptcy" and "Chapter 13 bankruptcy" used a lot. These terms refer to the chapters in the United States Code detailing the legal ins and outs of filing for bankruptcy.

Chapter 7 bankruptcy is the most commonly declared type. This chapter of the U.S. code details the laws governing the liquidation of the assets of a bankrupt person. Most individuals declaring bankruptcy under Chapter 7 laws are of the "no asset" type, meaning they have nothing to sell to pay down part of their debt.

Chapter 11 bankruptcy laws cover businesses, both incorporated companies and sole proprietorships. While some individuals may declare bankruptcy under Chapter 11 laws, it is rare that a person will qualify to do so.

Chapter 13 bankruptcy statutes are invoked in cases where an individual filer elects to undergo a financial "reorganization," which will be supervised by a bankruptcy court. This allows creditors to collect some or all of their debts while leaving the individual with some assets. Filing a Chapter 13 bankruptcy is not as damaging to your credit rating as filing a Chapter 7 bankruptcy is.

How to File for Bankruptcy

It is strongly recommended that you consult a lawyer if you're going to file for bankruptcy. An attorney can give you expert advice on how to file and how to protect any assets you might have to ensure you come out of the proceeding on the strongest possible financial footing. Bankruptcy law is complicated, so it's in your best interests to retain a lawyer if you have any uncertainty about how to proceed.

Basically, when you file for bankruptcy, you submit a petition to a bankruptcy court to hear your case. You've got to indicate what type of bankruptcy you're filing for (Chapter 7, Chapter 13 or another type), and a court date will be set. A judge will hear your case and make a ruling as to whether or not the filing will be legally recognized. During your hearing, you'll have to provide detailed information about your financial situation and demonstrate that you cannot possibly honor all the debts you've accrued.

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