How To Declare Bankruptcy The Easy Way

Are you one of the millions of people who are totally buried in debt, without any idea what to do to salvage your financial life? Have you given up hope that you can ever pay off your debts and get out from under? You might consider that the best way to clear the decks and start over would be to declare bankruptcy. This is a legal way to get rid of nearly all of your debts, and provide a chance to start over. But is it the best way to really fix your financial nightmare?

There are two types of bankruptcy that are provided for in the U.S. Bankruptcy Code, the laws created to provide bankruptcy options. The law was created for the precise purpose to help you get a fresh start when there is just no other way. Many people still feel there is a stigma to filing for bankruptcy, but the fact is, these laws on the books are to help you avoid having your life ruined by debt.

The two most important types of bankruptcy created for individuals (as opposed to businesses) are Chapter 7 bankruptcy and Chapter 13 bankruptcy. "Chapter" refers to the actual chapter of the law that sets out the specifics.

With a Chapter 7 bankruptcy proceeding, a debtor asks to have their debt completely discharged, and wiped off their balance sheet. The debtor must turn over all non-exempt property to the bankruptcy court trustee, who manages the debtor's "estate", or total financial assets and debts. The trustee will then sell property to turn it into cash, and divide it among all of the creditors who are owed money. After this is done, and the creditors are paid what there is available, the bankruptcy is finalized and the debtor is discharged of remaining debt obligations. At this point, you can start over with a fresh slate.

A Chapter 13 bankruptcy is also known as reorganization bankruptcy. In a Chapter 13 bankruptcy, you instead set up a plan to pay off the debt over a time period of three to five years. For some debtors who have property they want to keep, like a home, this type of bankruptcy may be a better choice than Chapter 7. After the bankruptcy laws changed in 2005, the court will require you to take a means test, and you must file Chapter 13 if you have regular income which is sufficient to pay your everyday expenses plus some payments on your debt.

What Is Non-Exempt Property?
Non-exempt property consists of hard assets including real estate, boats, motorcycles, cars, and other such items. A debtor is allowed to keep certain assets under a personal exemption, for things like a television or a personal computer. For most Chapter 7 bankruptcy petitioners, these individuals will not have any property which can be repossessed, so the process will proceed fairly quickly.

Some Debts Aren't Erased by Bankruptcy
Although you can wipe your debt off your balance sheet with bankruptcy, some debt is excluded. For example, you are not allowed to discharge debts for unpaid child support and alimony, any judgments you have received for personal injury or death caused by drunken driving, your federal income taxes owed, or student loans outstanding. To erase these debts would be unfair, as most people would file just to get rid of these.

What Are The Bankruptcy Fees?
Even though you can file bankruptcy yourself, it's definitely not recommended as it's quite a detailed process. The courts charge a filing fee of $245, as of this writing, plus an administrative fee of $39, along with a $25 trustee charge. For debtors whose income is 150% of the poverty level or less, they are eligible to request a waiver of the fees. You can also request to pay fees in installments. This is separate however from the cost of hiring a lawyer to do the filing for you, which can run $1,000-$2,000 and up depending on how complicated your case is. It's best to shop around for lawyers who have experience handling these cases.

Choosing Bankruptcy As A Last Resort
Read up about bankruptcy, before you file. There are many excellent books about the process, and most you can find for free at the library. Your bankruptcy lawyer should also be willing to explain the different options you have to filing. There are many ramifications which follow your filing and discharge, like your credit being impacted as well as having this on your credit report for ten years. There is a chance that a bankruptcy can hurt your applications for employment, or your ability to get approved for renting a home. While it might provide a fresh start in one way, it will create other effects in your life you will have to deal with. If there is a way for you to work with your creditors first, and make payment plans on your own, you might try to do that first, and work with an approved credit counseling agency to see if there is a way to avoid bankruptcy from the start.