How To Declare Bankruptcy

Figure out if you’re even eligible to declare bankruptcy. If you have a steady income above your state’s median, and if it is conceivable that you could afford to pay $100 a month toward your debt if you cut out extras like cable TV, you can’t file for Chapter 7 bankruptcy — the one that wipes out many of your debts.

Consider whether you might be a good candidate for Chapter 13 bankruptcy, which reorganizes your finances into a three- or five-year plan of partial repayment. The advantage to Chapter 13 is that you may be able to hang on to your home.

Stop all unnecessary spending. While it may be tempting to max out your credit cards with luxury items and cash advances right before filing for bankruptcy, this is considered fraud, and you’ll be held responsible for it.

Meet with a government-approved credit counselor about working out a way to repay your debts. This is mandatory before you are allowed to file for bankruptcy, and it must be done in the six months prior to filing. Get a list of accepted agencies from your local bankruptcy court, which you can find on usdoj.gov.

File a petition with the U.S. Bankruptcy Court. You’ll need to submit a case-filing fee, a detailed list of your assets and debts, a copy of your most recent tax return, a statement of your income and expenses, and other documents. You can do this on your own, but it’s not advised. Ask a legal aid office if you qualify for free representation.

Within 60 days of filing, you will be required to face your creditors at a court meeting and answer questions about your financial affairs.

If your petition for Chapter 7 bankruptcy is accepted, a U.S. trustee (or bankruptcy administrator, if you live in North Carolina or Alabama) will begin liquidating your assets in order to pay back your creditors. You may keep any tools that help you earn a living.

Enroll in a government-approved financial management education program. This mandatory course, which you must pay for, must be completed before any of your debts are erased.

Expect to have your debts discharged about three months after your filing date.