- Individuals can file for bankruptcy under Chapter 7, 11, or 13. Most people choose between Chapter 7 and 13. Chapter 7 presents a solution for people who do not have many assets. You must pass a "means test" to qualify. Those with assets, including homes, cars and other property, less than $100,000 in unsecured debts and $300,000 in secured debts, usually file for Chapter 13. It permits individuals to work under a court-approved plan to repay a portion of their debts. Individuals with debts greater than the Chapter 13 limits file for bankruptcy under Chapter 11.
- Means testing compares the household monthly income to the "median monthly income" for a similar family size in your state. By subtracting the typical household expenses taken from a table of average living costs for a family of your size in your area, you arrive at your "disposable income." If you pass the test, you can file for Chapter 7. If not, you must file for Chapter 13.
- You do not need an attorney to file for bankruptcy. In fact, most courts have an on-site office or attorney who can help guide you through the process. First, complete a 90-minute pre-bankruptcy credit counseling session. Pay the fee and file a voluntary petition, and specific financial documents, in the bankruptcy court for your area. The court issues an "automatic stay" to your creditors, which stops them from calling, writing or attempting to collect on the debt. Creditors cannot foreclose on your home, evict you from your apartment, repossess your car or take any type of action.
The courts assign your case to a trustee, who schedules a "341 meeting" with you and the creditors to discuss your financial situation. Chapter 7 filers must turn over property that exceeds the allowable exemptions to the trustee. The trustee sells the property and distributes the proceeds among the creditors. Chapter 13 filers may have to attend court to submit their reorganization plans to the judge for approval. Complete a two-hour financial management class before the court discharges the debts. - Take the credit-counseling session within 180 days before filing the petition. The 341 meeting usually takes place 30 to 45 day after you file. Finish the financial management class 45 days from the date of the 341 meeting. Discharges for Chapter 7 usually occur 60 to 90 days after the 341 meeting. Reorganization repayment plans take place under court supervision and usually have durations of three to five years before discharge.
- The court grants most Chapter 7 discharges. Denials occur in cases of fraud, failure to cooperate and hiding or disposing of property. A discharge does not eliminate all debts, such as alimony, child support, secured debt, federal education loans, governmental taxes and other obligations. Chapter 7 remains on your credit record for 10 years and Chapter 13 for seven years.