Filing bankruptcy is often frowned upon by people because it suggests mishandling of one’s resources.
But it really happens.
That’s why it’s important to know what needs to be done once you get yourself into that situation.
If you’re considering filing for bankruptcy but don’t know where to start, here are the different types of bankruptcy and how to file for each.
How Do You File Bankruptcy?
Filing Bankruptcy for Chapter 7: “Liquidation”
This is about liquidating the debtor’s assets to pay his/her creditors.
Through the means test, the court will decide if you have the capacity to pay your debts.
If you are approved for Chapter 7, a trustee is appointed and assets are either sold or repossessed to pay off the creditors.
That’s when the creditors will stop collecting.
Below are the steps in filing for Chapter 7 bankruptcy:
Step 1: Credit Counseling
Receive credit counseling. It is mandatory for anyone who is filing for bankruptcy.
Step 2: Qualification and Filling Out Forms
Find out if you are qualified to declare. Take the means test by completing three forms.
It is not necessary to complete all the forms.
Filling out the rest of the forms will depend on your answers on the first one.
Download all three forms for free at the U.S. Court’s website and fill them out.
- Form 22A-1 – Statement of Your Current Monthly Income
- Form 22A-2 – Means Test Calculation
- Form 22A-1Supp – Statement of Exemption from Presumption of Abuse Under §707(b)(2)
Step 3 – Filing Bankruptcy
Once forms are filled out, you may file for bankruptcy through your attorney if you have one.
You can also take the forms to court personally.
Step 4: Bankruptcy Trustee
The court will appoint a bankruptcy trustee.
He will represent your creditors and verify all the information in your documents.
He will also assess your properties to see what you can keep.
This is mostly an administrative process and will be done outside the courthouse.
It is rare for a debtor to be called to appear before the bankruptcy judge.
Step 5: Debtor Education
Get debtor education. The court requires this and credit counseling.
You’ll receive a certificate of completion that you need to present in court.
Take note, you need to receive education from organizations approved by the U.S. Trustee Program.
Step 6: 341 Meeting
Lastly, attend the 341 meeting. This is a formal meeting of creditors named after section 341 of the Bankruptcy Code.
The meeting takes place at the trustee’s office, where you’ll have to answer questions about your debts and assets.
Arrangements, such as selling non-exempt property and using secured loans as collateral, also take place here.
Filing Bankruptcy for Chapter 13: “Adjustment of Debts of an Individual with Regular Income”
It’s best to file bankruptcy if you have fixed income. This indicates that you can potentially pay some of your debts.
Aside from reducing settlement with your creditors, this also makes it possible to liquidate your assets.
Below are the steps in filing for Chapter 13 bankruptcy:
Step 1: Qualification
Check if you are qualified to file for bankruptcy.
There are certain limitations in filing Chapter 13 bankruptcy that prevents sole proprietors from filing.
Here are the qualifications:
- Must have a specific amount of disposable income
- Debts should not be too high
- Must be up-to-date with your income taxes
- Must show proof that federal and state income taxes are filed for the past four tax years
- Disqualified, if secure debts are more than $1,149,525
Step 2: Forms
Fill up the forms. These are the same as the forms required for Chapter 7.
Step 3: Filing Bankruptcy
Submit the accomplished forms to the court.
The court will assign a trustee to your case.
The trustee represents your credits. He will verify your information, look for fraud, and execute bankruptcy procedures.
The court recommends hiring a lawyer, but it’s not required.
Step 4: Attend Hearings
Attend two hearings with your creditors. Your trustee will arrange this for you.
Here, you’ll have to address the terms of repayment.
Filing Bankruptcy for Chapter 11: “Reorganization”
This bankruptcy is for business. It gives them the chance to continue operations.
But the court has to approve most decisions.
To pay off debts, you’ll have to discharge some employees, offload leases and contracts, or recover some assets so the business can stay open.
Below are the steps in filing for Chapter 11 bankruptcy:
Step 1: Qualification
If you’re a sole proprietor, part of a partnership, or a corporation, you qualify for filing Chapter 11 bankruptcy.
However, the debtor (except for small businesses) only has 120 days to file a plan.
Step 2: Forms
Fill out a voluntary request form. You should also file the following:
- Assets and liabilities plan
- Current income and expenditures plan
- Executory contracts and unexpired leases plan
- Financial affairs statement
Here are additional requirements:
- Credit counseling certificate
- Copy of any repayment plan developed through credit counseling
- Proof of payment from employers (given 60 days before filing)
- Monthly net income statement
- Proof of expected increase in income or expenses, submitted after filing
- Proof of interest you have in federal/state qualified education or tuition accounts
Step 3: Reorganization Plan
Submit a written disclosure statement and a plan of reorganization in the court.
The written disclosure statement should include details about your assets, liabilities, and business affairs.
This will help the creditor evaluate your plans for reorganization.
Step 4: Trustee and Examiner
In rare cases, the court appoints a trustee and an examiner.
The trustee is in charge of the administrative process, favoring the creditors.
On the other hand, an examiner investigates allegations such as fraud, misconduct, or dishonesty.
Step 5: Attend Hearings
You’ll need to attend meetings and hearings, especially once the reorganization plan is approved.
Filing Bankruptcy for Chapter 12: “Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income”
This is applicable to “family farms and fishermen.”
Chapter 12 bankruptcy gives you the chance to suggest a plan to pay all or part of your debts.
It also lets family farmers and fishermen continue their operations for the entire duration of the plan.
Below are the steps in filing for Chapter 12 bankruptcy:
Step 1: Qualification and Forms
See if you are qualified for filing Chapter 12 bankruptcy. Then, fill out the forms needed.
To complete the Official Bankruptcy Forms, you need to gather the following:
- List of all creditors with the amounts and nature of their claims
- The origin, amount, and frequency of your income
- List of all your properties
- List of all your monthly farming and living expenses
Step 2: Trustee
Once the bankruptcy is filed, the court assigns a trustee.
He is in charge of arranging meetings with creditors, hearings, and other administrative tasks.
Step 3: Plan
Just like Chapter 11, Chapter 12 also has a plan.
However, this will only last for three to five years. Once the court approves the plan, you need to ensure it will succeed.
Filing Bankruptcy for Chapter 15: “Jurisdiction”
Chapter 15 is an effective mechanism for insolvency cases that affect debtors and assets from more than one country.
This is in addition to a primary proceeding done in the other country, usually your home country outside of the United States.
Below are the steps in filing for Chapter 15 bankruptcy:
Step 1: Foreign Proceeding
File a petition for recognition of a foreign proceeding.
You should also prove the existence of this proceeding and the appointment of a foreign representative.
Step 2: Notice and Hearing
After a notice and hearing, the court will issue an order to recognize the foreign proceeding.
The automatic stay and certain provisions of the Bankruptcy Code takes effect in the U.S. once the court recognizes the foreign proceeding.
Watch this video from NowThis to know more about who can file for bankruptcy.
There are different types of bankruptcy according to law. With the help of an expert, you can properly identify which type of bankruptcy to file.
Bankruptcy is not easy. But keep in mind that you can get through it with the help of the law.
What type of bankruptcy do you think you qualify for? Let us know in the comments below so we can help you out!