Do it Yourself: Bankruptcy Chapter13

Chapter 13 or Chapter 7?

• Be clear on the type of bankruptcy you want to file. When most people refer to bankruptcy, it is chapter 7 that they are thinking of. Chapter 7 bankruptcy discharges debt that is not secured with a valid lien. Although, it does not magically erase all debt, chapter 7 bankruptcy does wipe most debt out. Almost all assets must be liquidated to pay back creditors, and your credit will take a big hit.
  
  On the other hand, chapter 13 bankruptcy is more about restructuring your existing debt in an effort to pay it back within three to five years. Unlike chapter 7 bankruptcy, chapter 13 bankruptcy allows you to keep your assets as you negotiate with creditors. Chapter 13 bankruptcy also does less damage to your credit rating than chapter 7 bankruptcy.
  
  

Bankruptcy preparation

• Once you have decided to file Chapter 13 bankruptcy, the first step is to pull your credit report. There are three major credit reporting agencies and they are each required by law to provide you annually with a free copy of your credit report. Make a list of all the debt that does not appear on your credit reports, such as rent, utility bills or tuition. Then make a list of all the assets you own, including your savings, your car and your home. You should also gather at least a month of recent paycheck stubs, bank statements and your last tax return. You will use this information to report your current and past debts to the courts on the bankruptcy forms. Your pay stubs, bank statements and tax information will be used to prove that you do not make enough money to pay those debts as they are now and need to have them restructured.
  
  Obtain copies of the chapter 13 bankruptcy forms and fill them out as accurately as possible using the information you gathered earlier. Be sure that you list all the creditors you can think of in your paperwork. If you forget to list any creditor, they can still go after you for the debt you owe them. Take those forms down to the U.S. Bankruptcy Court nearest to you to file. Expect to pay about $275 in filing fees, but there may be a payment plan available.
  
  You should be aware that as soon as you file for bankruptcy, your creditors can no longer attempt to collect their debts from you. The court notifies them of your bankruptcy and that they must stop all debt collection attempts. They cannot start or continue to garnish your wages. They are also not allowed to initiate or continue with lawsuits against you regarding your debt. They can not call you demanding payment.
  
  

Bankruptcy court and after

• After you file for chapter 13 bankruptcy, you will receive a notice of a meeting of your creditors within two months. The meeting of creditors is a court hearing where the court trustee and your creditors will ask you a few questions. They may ask about your income or certain debt you listed as a living expense. Do not be nervous facing your creditors. Creditors are not allowed to be abusive in this hearing or to demand immediate payment.
  
  After this meeting, you will be asked to file a payment plan with the court within about two weeks. This payment plan will take the complete amount of debt you owe and spread it over monthly or biweekly payments over three or five years, depending on your income. (You should note that if you can not pay back this debt in less than five years, you may want to consider filing chapter 7 bankruptcy instead.) Each time you make a payment to the court, the trustee will divide that money among your creditors as the law requires.
  
  There is one more hearing where a bankruptcy judge will approve the payment plan and then close the case. It is very important to keep up with the payment arrangements you made to avoid having your bankruptcy case dismissed and your financial situation revert back to the time before you filed bankruptcy. A chapter 13 bankruptcy will remain on your credit report for 10 years. This does not mean that no one will offer you a line of credit during that time. Within a couple of years, you may be eligible for certain lines of credit. If you continue to make your agreed-upon payments and make smart financial choices, you will see an improvement in personal finances in just a few years.
  
  

Do I need a lawyer?

• Many people do file bankruptcy with the help of a lawyer. They do this because they want to have the advice of a professional or they don't have the time to fill out the paperwork themselves. Some may even feel like they have a better chance of working out favorable payment plans with their creditors if they use a lawyer. Some people just want a lawyer to walk them through the process.
  
  The truth is that while a lawyer may have more experience with bankruptcy, he will fill out the same forms you would if you did the filing. Also, the payment plans you work out with your creditors have little to do with your representation and are based on your income versus your current debt. A lawyer will also charge a fee in addition to the $275 filing fee given to the bankruptcy courts. Ultimately, only you can decide if you are comfortable to file chapter 13 bankruptcy for yourself or if you need a lawyer to do it for you.