If you're unable to pay your creditors, filing for bankruptcy can help you get a fresh start by liquidating your assets to pay off your debts or create a payment plan. But it's considered the debt management option of last resort because the results are far-reaching and long-lasting. Bankruptcy information stays on a credit report for 10 years and can make it difficult to get credit, buy a home, get life insurance, or sometimes get a job.
Types of Bankruptcy
As federal courts have exclusive jurisdiction over bankruptcy laws, cases must be filed in federal bankruptcy court. There are two main types of personal bankruptcy:
- Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car, that they might otherwise lose in the bankruptcy process.
- Chapter 7 is known as straight bankruptcy; it involves liquidating all assets that are not exempt.
Steps to File for Bankruptcy
The Bankruptcy Abuse and Prevention Act of 2005 (PDF, Download Adobe Reader) established more stringent rules for consumers and attorneys. In the bankruptcy filing process, there may be multiple steps:
- Debtors must file documents, including itemized statements of monthly net income, proof of income (pay stubs) for the last 60 days, and tax returns for the preceding year (four years for Chapter 13 bankruptcies).
- Debtors must take a pre-filing credit counseling and post-filing education course to have debts discharged. To find an approved credit counseling provider, consult the U.S. Trustee Program.
- Debtors face increased filing fees, plus fees for credit counseling/education.
- The bankruptcy and petition process is complicated, so it is difficult to file without an attorney. Attorney fees are extra and vary.
Report Bankruptcy Fraud or Abuse
You can file a report with the U.S. Trustee Program at the United States Department of Justice (DOJ).
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