What does a debtor do when he has to file bankruptcy?  How does he/she go about it?  For most people who are overloaded with debt, it is a very stressful time?  They are receiving harassing letters and phone calls from creditors threatening them with legal action if they don't pay.  The debtor can't pay because he doesn't have the money to satisfy his creditors.  Bankruptcy is a legal process to help people or businesses with extreme debt problems. Unfortuneately, most people don't know how to file bankruptcy.

Steps in How to File Bankruptcy

     If bankruptcy is being considered, the first thing to do is to seek the advice of a bankruptcy lawyer or a credit counseling agency, the first step in how to file bankruptcy.  The agency must be approved by the United States Trustee's Office to comply with federal law. The debtor is evaluated to see if bankruptcy is required.  Sometimes a formal filing can be avoided by a debt consolidation loan or by negotiating with creditors.  If not, then the debtor's income is subject to a means test where an average six month income figures is compared to the median income value for the area he resides in.  If his income is greater than the median, then he can not file under Chapter 7 bankruptcy and must file under Chapter 13 bankruptcy.  If the debtor's income is less than the median, then disposable income is calculated.  Allowable expenses, based on IRS standards, are deducted from the income figure.  If disposable income is less than $100, the debtor qualifies for a Chapter 7 bankruptcy  filing.   

     In a Chapter 7 bankruptcy filing, known as straight bankruptcy, the debtor's non-exempt assets are liquidated.  Exempt assets are excluded from the bankruptcy proceedings. Asset rules depend on the state of residence or on the federal rules, depending on which are used.  A debtor must be a resident of a state for two years in order to file under that states rules. The money from the liquidation is paid to the creditors. The balance of unsecured debt is then discharged after the filer shows proof that he has completed the required courses on debt and financial management.  The bankruptcy will show on his credit record for a period of ten years.  The debtor has to start over and re-establish credit after bankruptcy.

How to File Bankruptcy Chapter 13

     In a Chapter 13 bankruptcy filing the debts are renegotiated with the creditors.  A payment schedule of up to five years is worked out.  Depending on the plan, once the debtor fulfills his part of the plan the remainder of the debt may be discharged.  This is one of the reasons you want to have a bankruptcy lawyer on your side.

     Both forms require consultation with a credit counseling agency that works out a plan that is submitted to the bankruptcy court.  The plan does not have to be accepted by either the debtor or the court.  The filer should consult a bankruptcy attorney to see that his rights are protected and that he gets the best possible deal on how to file bankruptcy. If done correctly you should be able to get a mortgage after bankruptcy along with other types of credit. It all starts with learning how to file bankruptcy correctly.