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How to file bankruptcy?


Bankruptcy can be the worst thing that can happen to a company. Nowadays, with the global financial crunch, we hear many stories about companies being bankrupt and there are many reasons behind it. In this short article, we try do discuss how to file bankruptcy. If we are to talk about the reasons behind bankruptcy, then a whole book can be written with a few volumes.

Almost all the countries of the world have different rules and regulations for filing for bankruptcy. But they have a significant amount of similarities as well as notable differences. Let’s focus on the process of filing for bankruptcy in the United States as US laws have much impact on the rest of the world.

First of all, bankruptcy is the last option you should consider. You need to make sure that there are no alternatives available for you. If you are an individual, the bankruptcy records will be in your credit records for 10 years. For this 10 years period, your financial activities and the opportunities will be very much limited as you will be considered as a high risk individual when it comes to finance related matters. The first requirement is to get financial counseling before filing for bankruptcy. This is a must under the US bankruptcy law.

There are two types of bankruptcy; chapter 7 and chapter 13. Chapter 7 offers a straight bankruptcy and chapter 13 offers bankruptcy with a repayment plan for individuals. Due to the nature of two types, US government encourages people to file bankruptcy under chapter 13 by making chapter 7 process tight and harder. You need to find a lawyer to represent yourself. Some people prefer to engage in the process without a lawyer but this process has many obstacles where you may need one. Once you select the best lawyer for you, it is time to talk to him/her and select the chapter suitable for you. You also need to discuss and agree on the lawyer fees. Some lawyers may charge you a flat fee while other may charge based on the amount of debt you have. The second approach is usually considered as the best. You may have to pay lawyer fees upfront when it comes to chapter 7 and in installments when filed for chapter 13.

All the creditors should be referred at the lawyer’s office and the creditors will be notified by the lawyer. After this, ‘automatic stay’ will come to effect so the creditors will not contact you regarding the money that you owe them. If they do contact you regardless of the ‘automatic stay’, they are violating the regulations and they can be punished as well. Once the above steps are done, you will have to wait for the meeting with the creditors, usually called ‘341 meeting’. You need to go through your list of liabilities and assets with your lawyer prior to this meeting. You will be asked a few questions in the meeting regarding the financial status and other things. This meeting usually lasts 10 to 15 minutes.

In a chapter 7 case, a trustee will decide whether some of your assets can be sold for repaying some of your credits. If your assets are exempted, then a ‘no distribution’ will be filed to the bankruptcy court. You need to remember that in chapter 7 case, you will never have to pay to your creditors once the bankruptcy case is over. In a chapter 13 case, you will have to repay your credit with a 3 to 5 years plan. After the 60th day of the 341 meeting, discharge notification for credits will be notified to you incase if your creditors do not have filled lawsuits against the discharge. Knowing how to file bankruptcy is the best tool you will have in the case of filing for one as it will guide you to do the right thing at the right time.


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