You should know what the legal requirements are for filing for bankruptcy before you file, whether you want to start fresh or get out from under debt. If you don’t, the process can be more difficult than it needs to be. Filing for bankruptcy can help you regain control over your finances and eliminate the stress and anxiety of dealing with creditors. You must also meet certain requirements to qualify for either Chapter 7 or Chapter 13 bankruptcy.
The first requirement is that you must meet the bankruptcy means test to determine if you have enough income to repay your debts. The means test is applied to individuals and corporations to ensure that they can afford to repay their debts under a court-ordered plan. You must take the means test if you want to file for Chapter 7 bankruptcy, which can eliminate most of your unsecured debts such as credit card bills, payday loans, and medical expenses.
Individuals and partnerships can use Chapter 7 to get rid of all their unsecured debts without losing any property. However, a debtor may be required to pay back some of their secured debts if they own real estate such as a home or car that is pledged as collateral. Creditors are allowed to repossess or sell secured debtor’s property during and after a bankruptcy case, but they cannot seize nonexempt assets or property.
Once you have filed, the trustee overseeing your bankruptcy will review all of the paperwork to make sure it is complete. The trustee will then look for nonexempt property to liquidate so your creditors can get paid. This is typically done in about four months. The trustee will then hold a meeting with your creditors, where you must be present and answer questions under oath about your assets and financial affairs.
If you file for Chapter 7 bankruptcy, the trustee will distribute any cash from the sale of your nonexempt property to your creditors. This usually happens within four months of filing. If you filed for Chapter 13, you will need to create a payment plan that will allow you to keep your property while repaying your debts, which takes between three and five years to complete.
An individual can file for bankruptcy under Chapter 7 or Chapter 13 only if they have not received credit counseling from an approved agency in the 180 days before their bankruptcy is filed. You must also complete a budget course to determine whether you can afford to make your payments under your bankruptcy plan. You must also make all payments to secured creditors or lessors, including mortgage and car loan payments, that come due before your Chapter 13 bankruptcy is confirmed by the court. Failure to do so could result in the court dismissing your case. You must also continue to make payments on any debts that become due before your bankruptcy is confirmed, such as child support and tax debts. You must also pay the fees to file for bankruptcy.