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Steps On How To File For Personal Bankruptcy

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Published: 14Jan2009
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Personal bankruptcy is a very serious decision. One has to carefully weigh his options and the consequences of his decisions before taking this step. Bear in mind that a record of bankruptcy will stay on your personal credit report for at least seven years.

A record of bankruptcy will impose certain limits and restrictions on your future plans. Therefore, being stuck in bad credit doesn't mean you have to think about filing for bankruptcy right away. Consider all other possible options first to recover from bad debt.

Nevertheless, if you made the decision and if you're ready to go through the whole process, here are the steps you should take when filing for personal bankruptcy.

Seek credit counseling. In the past, a person who decides to file for bankruptcy can just fill out an application and submit. However, since the amendment of the bankruptcy law, this decision is not up to the individual anymore.

In order to know if you're eligible for bankruptcy, it is mandatory to first complete a credit counseling course from a government accredited agency. The credit counseling agency would be the one to decide whether you are a candidate for bankruptcy or not.

In case you're not eligible for bankruptcy, rest assured that the credit counseling agency will help you get out of your debts more easily. They can negotiate with your creditors for a more convenient repayment plan and you will receive guidance and support in managing your finances. The good thing about this arrangement is that you can rebuild your credit report without resorting to bankruptcy.

Hire a bankruptcy lawyer. If you are eligible for bankruptcy, you must hire your own bankruptcy lawyer. Preparing the documents needed to start the bankruptcy process is complicated and should only be accomplished by an attorney.

Your lawyer must see to it that all the information on your documents are correct to avoid being accountable. Because of the weight of this responsibility and the many tasks involved in filing for bankruptcy, a bankruptcy attorney may ask a high service fee for his services.

Pass the "IncomeMeans Test Calculation". After submitting your bankruptcy application, you will submitted to the "income means test calculation". Here, your income would be tested as to whether you are capable of paying your creditors or not.

If the result of your "means test" falls below the required capacity, you will be eligible to file for Chapter 7 bankruptcy. If it's beyond the income requirement, then you would haveto file for Chapter 13 bankruptcy.

Chapter 7 Bankruptcy. If your application for bankruptcy chapter 7 is approved, then you are immediately discharged from all your debts to your creditors. However, bear in mind that this will be reflected on your credit report and will remain for a maximum of seven years.

Chapter 13 Bankruptcy. If you filed for Chapter 13 and is approved, you will be subjected to a five-year repayment plan where you must submit a percentage of your salary each month to pay your creditors. The percentage of the salary deduction would depend on the amount of debt you owe and the value of your monthly income.

Copyright 2009 New Horizon Business Services, Inc NHBS, Inc has been providing consumers and business owners with financing since 1989. Join our mailing list for Free Tips on Rebuilding and Repairing Credit. Click here bad credit credit cards for cards that suit your needs. Melanie Mathis is a co-author or Liz Roberts at newhorizon.org

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