Bankruptcy Law Explained

How To File Bankruptcy

[You do not need to study bankruptcy laws or to review this section if you have chosen to have us prepare your bankruptcy for you.]

Index:

Bankruptcy Law Summary
Chapter 7 bankruptcy laws
Chapter 13 bankruptcy laws
Property and Exemptions
Structure of bankruptcy laws
Case administration
Types of bankruptcy
How to file bankruptcy

Should you file?

The first step in filing bankruptcy is to determine if you really need to file in the first place. You should file bankruptcy when it is no longer in your best interest to keep paying your creditors. How do you determine that point? It will vary for most people as follows. 

If your debts are mostly credit cards and unsecured loans and your credit is already bad, that point will be when you cannot pay off all of your balance within 12 months. The reason is simple. If you have bad credit, filing bankruptcy will not make it worse. In fact, it can actually make it better. Why 12 months? It is because, if you file bankruptcy, you can rebuild your credit sufficiently to finance a new car in 6 to 12 months and enough to buy a house in 24 months. A person who files bankruptcy and rebuilds their credit in 12 months will be in a much better financial situation than a person who pays off their debt in 12 months and is still stuck with horrible credit. Such a person will not be able to finance a house for at least 5 years.

If your debts are mostly credit cards and unsecured debts and you gave good credit, it is advisable to file bankruptcy if you cannot pay back all of your debt in 24 months while maintaining excellent credit. Your good credit is the key. If you can pay your debts in reasonable time and still maintain good credit, then you do not need to file bankruptcy.

The bottom line is to do what is in your best interest, not what is in the best interest of the creditors. In spite of the so called high rate of bankruptcy, credit card companies just about force their cards on consumers and they do it for only one reason. They want what is in their best interest and that is maximum profit and they do not care if you over-borrow and eventually ruin your finances. If you are being crushed with the heavy burden of debt you do not have to suffer one more day. And do not let them dangle the carrot of good credit in front of you. Good credit can often be a moving target. The more you do your best to keep up with your payment and protect your credit, the more difficult it gets. What does it take to get the good things in life? It is money and lots of it, not good credit. If you are never able to save up the money for a down payment on a house because you are keeping up your high interest credit card payments, what good is your good credit?

What should you file, 7 or 13?

As a consumer, there are two types of bankruptcy that you can file. You can file Chapter 7 or you can file under Chapter 13. 

When a person files Chapter 7, their goal is to wipe out most if not all of their debts. You file under Chapter 7 if your debts are largely unsecured or if you want to wipe out most of your debts and never repay them again. If your debts are mostly loans or credit cards and judgments, you would most likely want to file Chapter 7. Imagine that for six months or more you are suffering terribly under the heavy burden of debt and all of a sudden, all that load gets lifted off you and you are a free person. One person likened it to being declared not guilty after a long trial without bail. That is what debtors report experiencing when they file Chapter 7 bankruptcy.

Chapter 13 is the second most popular type of bankruptcy. There are certain debt situations where a Chapter 7 bankruptcy is not in your best interest. In those situations, you want some breathing room to catch up with your payments. Chapter 13 is suited for those situations where you are best off paying off your debts but you need more time than your creditors will allow. Most people who file under Chapter 13 do so because they have fallen behind on their mortgage payments and are facing the possibility of foreclosure. In such situations, bankruptcy law allows debtors up to three years to pay up the arrearage while maintaining their regular payments. 

Should you file Chapter 13 bankruptcy? That depends on the nature of your debts and on your objectives. If your debts are mostly credit cards and unsecured debts, file Chapter 7. If you are behind on your house payments and need several months to repay the arrearage, file Chapter 13.

There are those who mistakenly think that Chapter 13 is better for their credit rating than Chapter 7. This notion is incorrect. In many ways Chapter 7 is better for your credit than Chapter 13. This is because when you file Chapter 7, your debts come to a halt immediately and you can begin rebuilding your credit immediately. Under Chapter 13, you cannot begin rebuilding your credit for three years which is the standard length of the Chapter 13 Plan. Most home loan programs allow you to qualify for a home loan two years after your bankruptcy is over, so with a Chapter 7 you could rebuild your credit three years sooner than with a Chapter 13 bankruptcy.

For more information on the differences between Chapter 7 and 13 click the details link below.

Get Details - Types of bankruptcy

For a more detailed treatment of Chapter 7 bankruptcy laws, click the details link below.

Get Details - Chapter 7 Bankruptcy Laws

For a more detailed treatment of Chapter 13 bankruptcy laws, click the details link below.

Get Details - Chapter 13 Bankruptcy Laws

For information on the structure of the bankruptcy law, click the details link below.

Get Details - Structure of Bankruptcy laws

How to File Bankruptcy

Bankruptcy Process Timeline

Filing bankruptcy begins by making up your mind to end the suffering and then choosing which type of bankruptcy to file.

Step #1

You do not need much information to get started. You will need to have the names and addresses of your creditors. If your creditors have sent your debt to collection, you can include the collection companies if you know who they are but you do not have to. Listing only the main creditor is okay since you only own the money once. If you only know the collection company but not the original creditor, listing the collection company will do. If you hire us to prepare your bankruptcy, you do not need a credit report or to know exactly how much you owe since we can work with approximations. We only need the names and addresses of your creditors. You can get started even if you do not have all your information. We allow you to give us the information at your own pace.

Step #2

The process of conducting a Chapter 7 bankruptcy is easy. It is the paperwork that is difficult. At first glance it looks like all you have to do is to download some free bankruptcy forms and fill them in, but there is more to it than meets the eye. When you consider that the forms for a personal bankruptcy are the same ones that big corporations use, you will appreciate all serious bankruptcy attorneys do it by computer rather than by paper forms or bankruptcy kits. Better yet, nothing beats having your bankruptcy prepared for you and that is where we come in.

There are many hundreds of laws to keep in mind and numerous calculations to perform and if you have never done this before, you have now way to know if what looks good to your eyes is actually what the court wants. You can save a few dollars typing the forms yourself or even using software but it is not worth it. To be on the safe side, you are best off hiring us to do everything for you.

Step #3

After preparing the paperwork, you will need to file them with the court. This is the easy part. You can file them in person or you can file them through the mail. Each bankruptcy court has a list of requirements for how many copies they want. You will also need to pay the court filing fee. When you file your bankruptcy, the court clerk will place the court stamp with your docket number on the petition. From that moment on, all of your creditors must leave you alone.

Step #4

After filing your bankruptcy, you get to wait for the court to do its part. That includes sending out the Notice of Commencement of case to the creditors and scheduling the Meeting of Creditors. During this waiting period you can file amendments to your bankruptcy to add more creditors or to correct information in the original filing. If you did not file all of the documents the first time, the court clerk gives you 15 days to file them failing which they will dismiss your case.

Step #5

Approximately four to five weeks after the petition is filed, you have to appear at the Meeting of Creditors. If your documents are perfect, your time in front of the trustee will last only a few seconds. If the documents are faulty, you will have problems with the trustee and you could be ordered by the trustee to appear again at another meeting of creditors or worse yet, at a private examination. Though this does not happen often, these second meetings tend to be scheduled when there are inconsistencies in the data presented in the documents or when the numbers do not add up properly.  

Does it help to have an attorney at the meeting of creditors? No. Attorneys are not allowed to speak in your stead if you are a natural person as opposed to a corporation. In fact, they usually only state their name and that is it. Some people believe that having an attorney at the hearing could indicate that you have money and could cause the trustee to look over your case more closely than if you did not have an attorney.

Using a program or kit is still do-it-yourself and cannot be compared to a professionally prepared bankruptcy. These programs do not guide you in the process or check for errors. You still have to know what each schedule is about and what data belongs to what schedule. You should not have to worry about whether or not the program is placing the information on the wrong forms. The best way to avoid problems at the meeting of creditors is to have us prepared your bankruptcy documents professionally for you.

Step #6

Approximately 8 to 12 weeks after the meeting of creditors, the court will send you and all the creditors a notice saying that your dischargeable debts have been discharged.

Step #7

Any time after the discharge, the court will close the case.

Having said all of the above, we still think that it a good idea to hire an attorney to help you with your bankruptcy if you own a business or if you are a corporation. On the other hand, if all you need is a personal bankruptcy, we are your best choice for quality and value.

Comparative Analysis of Bankruptcy Preparation Options

Bankruptcy Kits

A bankruptcy kit is a package of blank paper forms, an instructions sheet and gimmicks for reestablishing credit after bankruptcy. What typically happens is that you fill out an online application and the kit seller mails you the kit. From here on, you are on your own. You will have to spend a few weeks studying, planning and filling out forms. Some kit sellers even have electronic kits, but before you get too excited, consider that they are the same as paper forms except that you have to already have Microsoft Word installed and you have to spend several weeks studying, planning and typing them. Also, they require you to disable your computer's virus protection and to install a program on your hard drive that could be lodged permanently in your computer's registry and that could affect your other programs.

Paper Forms

Simply put, unless you are a paralegal or attorney, filing out paper forms can easily become a nightmare, even if your case is simple. Most people who start out with paper forms and kits usually give up after wasting 4 to 5 weeks. They eventually hire an attorney or paralegal and they do not get back the money they spent to buy the forms or kits.

Why is it so difficult to successfully prepare the forms by yourself manually? The answer lies in the following. A typical bankruptcy involves hundreds of pieces of information and there are dozens of possible variations or answers to each of the pieces of information, thus making for thousands of unique variations from case to case. Each one of these hundreds of bits of information has a specific relevance to your case. The questions are not multiple choice, so how do you know what the form is asking for? Yes, many of the questions are self-explanatory, for example, "What is your first name?", but what about the question, "What is the nature of your interest?". Would you guess that for real estate, the answer is "Fee Simple"? 

Coupled with this, there are literally thousands of bankruptcy laws and rules and any of these laws could apply to your case. There are in total over 1,000 exemption laws to protect your property from seizure by the bankruptcy trustee and these laws vary drastically from state to state. Using the wrong law could affect your property and the forms do not tell you which ones to use or that you even need to protect your property.

And there is the classification and treatment of your debts. There are eight priority debt classifications, two to four secured debt classifications, unsecured debts, executory leases and contracts, 34 property classifications, purchase money security interests, non-purchase possessory money security interests and much more.

Finally there is the actual preparation of the forms, summarizing of all your information, maintaining several running calculations, understanding and computing the value of claim without deducting for collateral. When you are done you should end up with 10 schedules, several statements, declarations and notices, in all 30 to 50 or more pages of paperwork. 

And then there is the United States Trustee working through the Standing Trustee who is charged with the responsibility of examining all of your information to see that everything is in order and that you are not abusing the system.

This is not to say that it is impossible to do it with paper forms. Yes, there are many attorneys that cannot prepare a bankruptcy because of lack of experience and there are individuals who have done it with some persistence and determination, but should you use paper forms or kits when you can use a good bankruptcy attorney or bankruptcy software? That is up to you.

Bankruptcy Software

At first glance, bankruptcy programs might seem a reasonable alternative to forms but on closer look there are many good reasons to very cautious. How long did it take you to master Microsoft Word or Word Perfect? Are you ready to spend weeks learning to use yet another program that you will never need to use again? Have you ever been scared that your computer was infected by a virus or that you had been hacked? Virtually all software writers give themselves a backdoor access to their programs just in case they need it and most of the time you do not worry about that access since you are dealing with well known software companies such as Microsoft and AOL. What about the authors of the bankruptcy programs? Do you know who they are? Just about every bankruptcy software company outsource their programming needs to outside programmers but where do they find these programmers? Many of these freelance programmers work for other masters such as spam marketing companies and Trojan horse sites, the sort of people who trick you into downloading a worm when you visit their sites. When you install any program off the internet, you risk giving one of these guys a backdoor access to you operating system.

Professional Bankruptcy Preparers

The only sane way to have your bankruptcy prepared is to have it prepared for you. Skip the hassle of paper forms, skip bankruptcy programs and their inherent security risks. It really is just plain common sense. Yet you would be surprised how many people will ignore this advice and trash their computers with no-name bankruptcy software or get themselves bogged down for weeks fiddling with paper forms and kits. Let a professional who has prepared thousands of bankruptcies put their knowledge and resources to work for you.

If you have learned anything from reading this section on bankruptcy law, it should be that we know what we are talking about. Unlike most other bankruptcy preparation companies, as the saying goes, "we wrote the book". Let us prepare your bankruptcy for you. You will love our work and our low prices.