Bankruptcy doesn’t have to be scary or intimidating. It can actually be completed in as little as 10 steps. Read on to find out how!
1. Gathering and reviewing your financial information.
This is where the bankruptcy process begins. And here’s the good news. By tackling the hard stuff first, the rest of the bankruptcy will seem effortless!
Most bankruptcies require six months of pay-stubs or proof of income, three months of bank statements, and tax returns and W-2’s or 1099’s for the past two years. If you were unemployed at some point during the past six months, or are not required to file a tax return, don’t worry! There are procedures to handle these issues. Many attorneys, such as myself, also have a bankruptcy checklist and packet to help expedite the process.
Why so much information? Two reasons: first, they’re required to be provided to the case trustee. Second. they provide your attorney an overview of your financial situation, a way to check for expenses which might be unaccounted for, and to determine whether you meet the means test. Additional documents may be needed if you own a home, have a business, etc.
As Benjamin Franklin reportedly said, “If you fail to plan, you are planning to fail!” Yes, there are cases where an emergency is needed to save a home or stop a wage garnishment. But in most cases careful planning is necessary to maximize your exemptions and protect your bottom line. For example, if you typically receive a large tax refund, a bankruptcy attorney may caution against filing before you’ve had an opportunity to receive and spend your refund on items that you truly need – like home repairs, dental work, food, clothing, etc. Without careful planning, you might find your tax refund ending up in the hands of the trustee and being used to pay your creditors instead!
3. Consumer credit counseling.
Starting in 2005, Congress decided in its infinite wisdom that individuals wanting to file bankruptcy must take a consumer credit counseling course before their bankruptcy case could be filed. There are a variety of agencies approved by the U.S. Trustee. The courses, which are generally 90 minutes long, can be taken online or over the phone. Once completed, the credit counseling agency will issue a certificate to be filed with your bankruptcy petition. Think of the certificate as a key. Absent incredibly extenuating circumstances, a bankruptcy attorney cannot file your petition without it.
4. Filing the petition.
Once all of your documents have been provided and reviewed, and strategy developed, the next step is to prepare a “voluntary petition in bankruptcy.” Among other things, the petition and schedules lists all of your property and debts, and provides a snap-shot of your current monthly income and expenses. In central Indiana, the petition is filed electronically and assigned to the United States Bankruptcy Court located in downtown Indianapolis. The case is immediately assigned a unique number. The filed copy of the petition and other documents are then returned via email within minutes. I prefer to provide my clients with the case number the same day the petition is filed. That way if creditors call, clients can quickly provide the case number and all further contact from the creditors should cease. The number is key – without it, creditors just don’t take you seriously.
5. Meeting of creditors.
Regardless of what chapter the case is filed under, debtors are required to meet with a case trustee. The trustee is generally an attorney or CPA appointed by the U.S. Trustee’s office. The chapter 7 trustee handles many of the administrative matters in bankruptcy cases, examines the debtor under oath as to the contents of their petition, and ferrets out any non-exempt assets to be sold or liquidated for the benefit of creditors. In chapter 13 cases, the trustee has similar responsibilities, but more emphasis is placed on ensuring that the debtor’s plan meets the requirements of the Bankruptcy Code. In either event, the meeting with the trustee is generally short (approximately 10 minutes) and relatively informal. Generally, bankruptcy attorneys have a good idea of what to expect going into the meeting and can therefore prepare their clients well in advance.
6. Amendments, reaffirmation agreements, and negotiation.
Occasionally changes might be required to your petition and schedules. The good news is that the petition and schedules can be amended up to the point that the discharge is entered and the case is closed (you can also later reopen the case, but there’s a fee involved). Often creditors will ask you to sign a “reaffirmation agreement” should you wish to keep a vehicle or your home. A more thorough explanation as to reaffirmation agreements and their pros and cons can be found here. Finally, there may be times that your attorney will have to negotiate with the trustee or creditors.
7. The Debtor Education course.
Similar to the credit counseling course above, the debtor education course (also called “personal financial management”) is required to be taken before you can receive a discharge in bankruptcy. In fact, failure to take it can delay your discharge or result in the case being closed or dismissed without the benefit of a discharge. The course, which is two hours long, can be taken online or over the phone and often focuses on money-management skills. The cost is minimal (around $10) and at least one central Indiana chapter 13 trustee offers the course for free.
8. Confirmation of plan (if chapter 13).
For those in a chapter 13 reorganization, one of the main goals is to have your payment plan recommended for approval by the chapter 13 trustee and confirmed by the court. Confirmation means that the plan is adopted and approved as an order of the court and binding on your creditors. This allows the chapter 13 trustee to begin distributing the funds that you have been paying into the plan and ensures that the case continues to be administered in an orderly manner.
If bankruptcy was a football field, picture the discharge order as the end zone. In chapter 7 cases, the order typically comes 60 days after the meeting of creditors. For chapter 13 cases, it is upon the completion of your plan. In either case, the discharge means that you are no longer personally liable for the debts listed in your petition (excluding alimony, child support, certain tax debts, debts arising from wrongful acts or injury, etc.). In short, creditors cannot and should not attempt to collect these debts from you. That said, there may be secured debts, such as a mortgage lien or auto loan, that you will still need to pay on if you wish to keep your home or car. Your bankruptcy attorney can best advise you as to your particular situation and the effect of the discharge on your particular debts.
Once the discharge has been entered, the last step will be for the court to close your case. While you should be on your way to a fresh start and a sound financial future, in rare cases a creditor will pop-up with a debt that should have been included in your bankruptcy. This often seems to occur when medical billing is still being processed and portions are not paid by insurance. In that event, you can request that your case be reopened to include the creditor. There are also steps to protect your discharge.
While the bankruptcy process can be broken down into 10 manageable steps, there’s no reason that you should have to go at it alone. If you’d like to discuss your particular case and learn more about the bankruptcy process, contact me at (317) 695-1008 or [email protected].
About Matthew Cree
Matthew Cree is an attorney and counselor at law focusing on bankruptcy and collection defense in Greenwood, Indiana. His philosophy is to be there with his client every step of the way and to make bankruptcy as stress-free as possible.