According to the U.S. Courts, while overall bankruptcy filings dropped by about 6% in 2022, Chapter 13 filings for individuals were up by over 30%. Filing for personal bankruptcy often comes at the end of a long road of financial difficulties and can feel like an admission of defeat. However, bankruptcy exists to provide relief and a fresh start to individuals overwhelmed by debt.
Bankruptcy is not a decision to make lightly, and preparing for it involves several steps.
Understanding your financial situation
The first step is understanding the state of your financial situation. You need to gather information about all your debts – who you owe, how much and the nature of these debts. At the same time, take a detailed account of your assets – all sources of income and all your possessions. This process will help you determine if bankruptcy is the best course of action for you.
Choosing the right type of bankruptcy
In the United States, individuals usually file for either Chapter 7 or Chapter 13 bankruptcy. In a Chapter 7 bankruptcy, you may have to sell some of your property to pay off your debts. In contrast, Chapter 13 bankruptcy involves developing a repayment plan to pay back your debts over time.
Taking a credit counseling course
Before you can file for bankruptcy, you must complete a credit counseling course. This course aims to ensure you understand all the options available to you and the consequences of bankruptcy. You should complete this course with a provider approved by the U.S. Trustee Program.
Filing the paperwork
Bankruptcy forms will ask for detailed information about your debts, income, assets and financial transactions. You should take care to fill out these forms as accurately and completely as possible.
Handling the aftermath
After you file, you will have to attend a meeting of creditors, where you might need to answer questions about your financial situation and bankruptcy papers. Afterward, you will need to complete a debtor education course before you can receive a discharge of your debts.
Filing for bankruptcy is a complex process, but thorough preparation can help you make the process less intimidating and take a big step toward financial recovery.