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Bankruptcy - How it works

The decision to file for bankruptcy is a big one and should not be taken lightly. Because bankruptcy laws are complex and the paperwork required to file substantial, you may wish to have an attorney handle your bankruptcy filing as well as any financial decisions that result from the bankruptcy proceedings. Many attorneys use specially designed software to assist in completing the bankruptcy petition which is another reason it makes sense to enlist their help.

Before beginning the process, realize that under bankruptcy law, certain transactions may be considered non-dischargeable. For example, presumed non dischargeable if made within 60 days of the date you file for bankruptcy are purchases of specific luxury items in excess of $1,000. Also presumed non dischargeable are cash advances that total $1,000 if taken within 60 days of the date you file. Also non dischargeable in certain situations is debt that involves a materially false financial statement.

Filing for bankruptcy involves completing a multitude of different forms. All information must be typed and you will need to make multiple copies of certain documents to include with your bankruptcy filing. Between the forms, schedule, and other documents, there can be as few as 30 to as many as 60 pages in your petition to file for bankruptcy. The information recorded on all forms must comply with applicable rules as set forth by both local and federal bankruptcy courts. Therefore, it is definitely in your best interest to familiarize yourself with applicable laws. If that’s not possible, definitely consider hiring an attorney.

Four to six weeks after filing for bankruptcy, a mandatory First Meeting of Creditors is held. The bankruptcy trustee presides over this meeting at which your presence is required. While under oath, the bankruptcy trustee will review what you’ve included in your bankruptcy petition, and will ask questions about this information and also about your assets, liabilities and other applicable matters. Any creditors in attendance can also ask questions at this time.

To help prepare for all this questioning, your attorney will work with you beforehand and will also be in attendance, representing you. If creditors want to talk with you at this time regarding secured property or retention of credit cards, it’s usually a good idea to let your attorney handle these negotiations.

Eight to ten weeks after the First Meeting of Creditors is usually how long it takes before bankruptcy courts issue a discharge. In the event your bankruptcy is dismissed, you will have to wait six months before you’re allowed to refile.

Because it is a judgment, a bankruptcy can remain on your credit report for up to 10 years after the date of discharge. Taking immediate steps to responsibly manage your finances can go a long way towards reestablishing your credit and restoring it to an “A” rating. Believe it or not, this can happen as soon as two years after discharge. This is good advice since bankruptcy laws prohibit you from filing bankruptcy again for six years.

Disclaimer: The general information presented here relates to Chapter 7 consumer bankruptcy. This discussion is incomplete and does not involve consumer debt restructuring as defined under Chapter 13 bankruptcy; a different type of bankruptcy filing. The information presented is not meant as a legal opinion and should not be used as a substitute for legal advice. For detailed information regarding Chapter 7 consumer bankruptcy, refer to your state’s bankruptcy laws. For specific and complete information regarding how state bankruptcy laws affect your personal situation, it is advisable to seek independent legal representation.