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How to Declare Bankruptcy

It costs money to announce that you don't have any. And that's just one of many unpleasant surprises about filing for bankruptcy.


  • Step 1: Understand what it means Understand bankruptcy, which shelters you from having to repay certain debts. It does not mean all is forgiven. You remain responsible for student loans, alimony and child-support payments, overdue taxes, money awarded your spouse in a divorce, and judgments for assault or drunk driving.
  • TIP: Filing for bankruptcy does not puts eviction proceedings, child-support lawsuits, and divorce filings on hold.
  • Step 2: Determine eligibility 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.
  • Step 3: Consider Chapter 13 bankruptcy 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.
  • TIP: Chapter 11 bankruptcy involves complex financial restructuring and is mainly used by businesses or people with significant assets and debts.
  • Step 4: Stop spending on nonessentials 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.
  • Step 5: Get credit counseling 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
  • Step 6: File a petition 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.
  • Step 7: Face your creditors Within 60 days of filing, you will be required to face your creditors at a court meeting and answer questions about your financial affairs.
  • Step 8: Kiss your assets goodbye 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.
  • TIP: You may keep your car if you can work out a separate repayment plan for it.
  • Step 9: Attend money management classes 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.
  • Step 10: Get your fresh start Expect to have your debts discharged about three months after your filing date.
  • FACT: Did you know? Mark Twain, Harry Truman, and Walt Disney all went through bankruptcy.

You Will Need

  • Eligibility
  • Credit counseling
  • A bankruptcy petition
  • Successful completion of a money management course
  • Legal representation (optional)

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