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There are two types of bankruptcies that individual consumers file; Chapter 7 and Chapter 13. Chapter 7 involves liquidation of assets and completely discharging a person’s debts and thus freeing them of the obligation to pay. Chapter 13 is a little bit more complicated.

Chapter 13 bankruptcy is also referred to as a reorganization plan or an individual reorganization. This type of bankruptcy is typically filed by debtors with steady incomes that are greater than regular living expenses. It is also chosen when a debtor has valuable assets that cannot be exempted or if they owe debts that are non-dischargeable in a Chapter 7 such as child support or taxes.

Who Can File Chapter 13?

In order to qualify for Chapter 13, you must have somewhat of a reliable source of income and be able to prove to the court that you will be able to make the payments. If your income is too low, you may not be able to file a Chapter 13. Additionally, if your debt is too high you won’t qualify either. In a Chapter 13 bankruptcy, the secured debt cannot be more than $1,010,650 and unsecured debt not more than $336,900.

How Does Chapter 13 Work?

Child support and taxes are debts that are considered priority claims and usually have to be paid in full. Otherwise a payment plan is set up with the remaining debt that is owed and creditors are paid within 3 to 5 years based on priority. In a Chapter 13 bankruptcy, only a fraction of the debt is often paid and are not required to be paid in full (unless of course they are priority claims.) Debtors are allowed to keep all of their assets and are able to make payments on their debts interest free. After priority debts and secured debts such as a home or vehicle are added to the plan, any disposable income that is left will be spread out among the creditors that include credit cards and medical bills.

If you are filing a Chapter 13 bankruptcy, your payment will be based on a confirmation test which includes the Best Interests of Creditors test which calculates the non exempt value of assets and subtracts the Chapter 7 trustee’s administration costs. The Best Efforts test calculates disposable income, and the Priority Claims test are those claims that must be paid in full. The number that is the largest is the amount that you will pay over the life of the Chapter 13 bankruptcy plan. Attorneys fees are included in the repayment plan as well.

Once you have started the Chapter 13 process, you will probably need to make your first payment in 30-45 days. Most of the time the payments are made to the trustee who disburses the funds as directed in the repayment plan to the creditors. Another big difference between Chapter 7 and Chapter 13, is that in a Chapter 13 bankruptcy, you will have to ask permission to sell assets or borrow money, even from payday lenders. You are also not permitted to use any credit cards during the procedure until it is either discharged or dismissed.

As mentioned previously, your repayment plan may be as long as 3 years but cannot be more than 5 years. If you sell assets you can also apply payment to the plan and finish it faster. When the creditors have been paid according to the schedule, you will receive a discharge of debt, similar to the discharge in a Chapter 7.

Often, consumers want to choose a Chapter 13 bankruptcy because they feel it is just the right thing to do or they think that repayment will not harm their credit as much as a Chapter 7. Any sort of bankruptcy that is filed will likely remain on the credit report for at least 7 years, and thus affects your credit in the same way. If however, there is a possibility that you will not be able to make the payments that are required, it is best to attempt to file a Chapter 7 instead. If you cannot make your payments and are not allowed a modification of plan by the trustee, your bankruptcy will be dismissed without a discharge and you may end up filing a Chapter 7 anyway.

Most other aspects of the two bankruptcy filing procedures are similar. Chapter 13 bankruptcy also protects creditors from repossession and collection efforts. Both require debt and credit counseling and both require a Meeting of Creditors. The greatest similarity however is that both chapters allow you to obtain a fresh start and possibly get your finances back on track.

If you are unsure which chapter to file, you may want to speak with an attorney who will help you figure out, according to your specific situation which type of bankruptcy you qualify for and will best suit your needs.

After your bankruptcy is discharged, you will likely find your credit rating is less than ideal. In fact, before filing bankruptcy, your credit was probably not the greatest either. The good news though is that now you have a clean slate and can take advantage of a fresh start. The downfall of filing bankruptcy, is that in the process of rebuilding your credit, you will likely run into situations that you may not have anticipated. One of those situations may be having to purchase a car.

If you have a car, it is almost always best to hold off on purchasing another one or a newer one until you have no choice, simply because immediately after filing bankruptcy, the loans and offers you will be approved for will include extra fees and large interest rates. There are no doubt numerous organizations and creditors that would be more than happy to provide you with a loan that includes not-so-great terms. One reason of course is that they know you cannot file bankruptcy on them because you have just filed bankruptcy and will not be able to do it again for at least several years.

Finding someone to approve a car loan after bankruptcy is a fairly easy task. Finding a loan with a reasonable APR is a different story. That being said, you could actually get a car loan in as little as a few months after filing bankruptcy, however, the APR could also be around 15-20%.

In order to get a car loan on better terms, you may want to wait a couple years. During this time, you can work on keeping your credit clean and even establishing a positive credit history with a credit card. If you have a relationship with your bank or credit union, you may also want to check and see what kind of loan they would offer you as they may be more inclined to work with someone they already have a history with.

Car lenders will also look into your work history and how long you have been at your job and a stable residency history. This means that if you have just recently moved or have been unemployed, you will have a more difficult time obtaining a reasonable auto loan. If you wait a couple years and establish employment and residency history, it will work more in your favor along with the positive credit history you have been working on.

Unfortunately, there are times when you absolutely have to buy a car before a couple years have passed and sometimes obtaining a loan on a car with an extremely high interest rate, can help build your credit. The types of credit used (car loans, mortgages, credit cards) make up 10% of your FICO score, meaning you need to have a mixture of different forms of credit in order to rebuild your credit.

If you have to purchase a car and can’t wait, the car loan (if paid according to its terms) can actually help rebuild your credit, even with a high interest rate. Make sure however, that you are able to make the payments on the loan or you’ll end up defaulting. Also be prepared to have a larger down payment on hand as many lenders will require it before approving a loan. It may be helpful also if you have someone with a favorable credit score that is willing to co-sign for you. Although it may be difficult obtaining a co-signer after filing bankruptcy, having one could result in better terms. Keep in mind that if you default on the car loan with a co-signer, the co-signer will either have to pay your loan or will be stuck with the default on their credit report as well. You would not only be ruining the fresh start that bankruptcy provided you, but you will be ruining someone else’s credit as well.

It is not impossible to obtain credit after filing bankruptcy. The key is to make financially sound decisions that will keep you on the path to repairing your credit.

Choosing a bankruptcy lawyer should be a more complicated process than just going through the letter B in the phone book. Here are some questions to consider asking the attorney before your bankruptcy is filed.

What Are My Options?

When you consult with an attorney, you should be able to ask what your options are. This includes the pros and cons of Chapter 7 and Chapter 13, based on your personal situation. The attorney may also be able to give you an idea of what could happen if you do file bankruptcy and what may happen if you don’t.

You may find out that you don’t have to file bankruptcy but can take a different route with the attorney to settle debts. Either way, a bankruptcy lawyer will not be able to tell you what to do, but can give valuable advice as to which option may be the best for you.

What Information Do I Need to File Bankruptcy?

Typically you will need your credit reports because you want to make sure you have the information for all of your creditors. Attorneys require different information to start the bankruptcy and may have informational forms that need to be included. Some of these forms could be a list of expenses and information that includes your personal information. This is all information that is used for your bankruptcy, but knowing upfront what is needed, such as Social Security cards and numbers, can save you quite a bit of time later.

What Fees Are Involved?

There are attorneys that take bankruptcy cases pro bono and depending on your circumstances, you may only have to pay the bankruptcy filing fee. At the moment, the bankruptcy filing fee for a Chapter 7 is $299 and Chapter 13 is $274.

You may even qualify for a fee waiver with the court, which would waive the filing fee and possibly even the counseling fees.

If you do not qualify for a waiver or your bankruptcy attorney does not handle bankruptcy cases pro bono, you will want to ask what the total cost for the bankruptcy will be, including attorneys fees. Your attorney will probably have a fee agreement which details the expenses, but it is important to know the exact cost associated with your bankruptcy.

How Much of the Practice Consists of Bankruptcies?

If you have a fairly simple and standard bankruptcy, meaning credit cards and medical bills, it may not matter how many bankruptcies the attorney has worked on. Still, it is important to understand how familiar the attorney is with handling this type of case.

Are you the first bankruptcy? Are you the 20^th in one week? Answering these questions can give you an idea of not only the attorney’s workload but also whether or not he or she is learning right along with you. Incidentally, if you are the first bankruptcy, you may be able to negotiate a less expensive fee agreement.

How to Contact the Attorney

As most people know, attorneys are difficult people to get a hold of and sometimes you just have a simple question. Ask the attorney if there is an email address that is answered if you do have these types of questions, that way you can just send over a quick message without taking a chance on remembering at your next meeting.

If email is not an option, ask if there is a paralegal or legal assistant you can contact that will be able to help you with some of the minor aspects of filing bankruptcy.

Who Will Attend the Creditor’s Meeting?

Having a bankruptcy lawyer does not guarantee that he or she will be the one that attends the meeting with you. Sometimes an associate may attend, or another attorney that you have not been working with. If this is the case, ask to meet with the attorney that will be at the meeting.

It is best that the person that is familiar with your case also attends, but circumstances do not always allow that. Insist however, that it is an attorney that attends the 341 Meeting, and not a legal assistant or paralegal.

There are other questions you may want to consider asking your bankruptcy lawyer but these are the basics. If you are unsure about any part of the procedure, do not be afraid to ask. Make sure you choose the attorney that you are comfortable with; the one that answers your questions, and works for your best interests.

You may be wondering what exactly happens after you have filed your bankruptcy and completed the process. Don’t worry, you aren’t branded. People don’t know when they look at you that you had to file bankruptcy.

It will however, appear on your credit report. There was a time when people believed that a bankruptcy on your credit report meant you were doomed forever and would never be able to acquire another loan or credit card for the rest of your life. The first thing you may realize after filing bankruptcy, is that life is far from over.

The next thing you may realize after filing bankruptcy, is that some of the creditors may not understand that the debt has been discharged and will still contact you for payment. As soon as you file bankruptcy, you are granted an automatic stay. This means that all creditors are barred from contacting or attempting to collect any debt from you. The automatic stay may also stop foreclosure proceedings and force creditors to return repossessed property.

After the bankruptcy is discharged, you no longer owe the debt and you would think phone calls and harassing letters would be well behind you. The problem occurs most often when a debt is sold over and over again to different collection agencies. Some collection agencies may honestly not be aware of the bankruptcy. Usually, simply telling them that the debt was discharged in bankruptcy takes care of it and you won’t hear from them again.

Believe it or not, creditors will still call debtors thinking they might still actually receive payment for the debt.  Sometimes the debtor simply doesn’t know that the creditor cannot collect. Other times, bankruptcy filers are so afraid of messing up their fresh start that they pay, not realizing that they no longer owe the debt. A creditor or collection agency may even contact you trying to collect years after the bankruptcy.

It is illegal however, for debt collectors to continue to contact you. If this happens, it is advised that you gather as much information as you can from the creditor and then notify your attorney or a bankruptcy attorney. Although the attorney may just send a brief letter advising the creditor to cease collection activity, creditors are often sued for violating the Discharge Order for thousands of dollars.

How Does the Bankruptcy Affect Credit?

About 60 days after your bankruptcy is discharged, you should pull your credit reports again.  The bankruptcy should be on your credit report and any accounts included in the bankruptcy should be noted as “Included in Bankruptcy” and reflect a $0 balance. If the account still holds a balance, you should contact the creditor to make the correction, and challenge the item on your credit report. Additionally, if the account is noted as open or in collections or in any other way except “Included in Bankruptcy”, you need to notify the creditor or collection agency immediately. If an amount is showing as still owed, the creditor may be in violation of the Discharge Order, as you do not owe anything on the debt after the discharge.

It will be difficult to obtain a loan or credit after you file bankruptcy. Especially if you try to do so immediately after the discharge. Expect this for at least a year, and when you are able to obtain credit, also expect to pay extremely high interest rates. You probably won’t be eligible for a somewhat reasonable line of credit with a reasonable interest rate until around 2 years after your discharge, and this is if you manage to keep everything clean on your credit report during that time period. Additionally, more employers are pulling credit reports when considering applicants and you may have to pay large deposits with utility companies and phone companies. In these cases it’s best to keep your job and plan ahead.

A bankruptcy may remain on your credit for up to 10 years; sometimes the credit bureaus will remove it at 7, which is the period of time that most negatives fall off a credit report anyway. During this time it will be helpful to keep your credit report as clean as possible and focus on paying your bills on time. This way, you’ll have a better opportunity at rebuilding your credit history.  You cannot file another Chapter 7 bankruptcy for at least 8 years, at which time the 10 years on your credit report would start over again. This is another reason to try to keep your credit clean so you won’t have to file again.

After you file bankruptcy, you will need to be diligent in keeping track of your old debt (for when those creditors call) and making sure the new debt doesn’t get out of control. It is certainly not the end of the world, and many people find the brand new start a relief and the beginning of a new and healthy financial outlook.

Contrary to popular belief, Chapter 7 bankruptcy is not just a get-out-of-paying-bills free card. Although it is a relatively painless process, it is a more complicated process than just a game one plays when they don’t want to pay their bills.

Although there are those will abuse the process and not take bankruptcy seriously, there are thousands of others who file bankruptcy and turn it into a learning experience that helps them to better manage their finances while starting over.

According to bankruptcyaction.com, 2010 closed with 1,593,081 bankruptcy filings and 2011 is anticipated to have just as many if not more. I would guess that this means a whole lot of people are taking the process quite seriously.

So what exactly is a Chapter 7 bankruptcy? In technical terms, it is a proceeding that allows liquidation of a debtor’s non-exempt assets. If there are any (and most often there are not), they are sold by the trustee and according to priority, are distributed to the creditors that are owed money. Chapter 11 and Chapter 13 bankruptcies reorganize debt; Chapter 7 liquidates debt.

Some of the exempt and non-exempt assets are as follows:

• Home equity- the amount varies depending on the state you live in.
• A regular car
• Wedding rings and regular jewelry
• Pension and retirement funds

The point in bankruptcy is not to financially devastate a debtor and leave them with nothing. So most assets that are necessary for everyday living are allowed and are usually fall within the boundaries required to be claimed as exempt. However, non-exempt assets may be those things that are a little more extravagant (and not necessary for regular everyday life.) These may include luxury vehicles, expensive jewelry and fur coats, fancy electronics and/or appliances, and bank accounts.

A means test is also involved in Chapter 7 bankruptcy which calculates whether you qualify or not to file. The means test calculates your disposable income according to the expenses and income that you have. This test is used to keep those with high incomes from filing Chapter 7. If you do not qualify for a Chapter 7, you will need to file a Chapter 13 bankruptcy and set up a payment plan to pay off your creditors instead of discharging all of your debt. The means test is also based on the median income of your state, so again where you live is a factor in whether or not you qualify.

It is not advised to try to outsmart the bankruptcy court—meaning move anything that is non exempt to make it exempt. Nor is it advisable to lie about or try to get rid of any of your assets. If the court finds out that you have committed any type of fraud, your bankruptcy will be dismissed without a discharge and you will have wasted a bunch of time and money (as well as a possible ding on your credit report.) A bankruptcy may still be reported even if it isn’t discharged, which damages your credit without allowing the benefit of a fresh start.

Once your bankruptcy has been discharged, you are able to start over with a relatively clean slate. Most of the debt including credit card debt is no longer your debt and you are no longer obligated to repay the debt.

There are debts that are not dischargeable and these include things like child support and alimony, debts incurred from criminal activity, student loans (unless you can prove that repayment would cause undue hardship), and debts that were non-dischargeable in a previous bankruptcy that was dismissed due to fraud. Although there is always a way to get around some of these non-dischargeable debts, it is usually not worth the time and money to file the adverse proceeding. Additionally, it can be quite difficult proving to the bankruptcy court that these debts are dischargeable and not covered by the general rule. One of the good things about a Chapter 7 though, is that most all other debt is discharged, which frees up money that can be paid on the few non-dischargeable debts and payments you have to make when the bankruptcy is completed.

There are of course a number of ways to file bankruptcy and a number of self help resources online for those that are brave enough to go it alone. Unless you have very little debt and few assets however, I will usually always suggest finding an attorney to help you file your bankruptcy. Otherwise, you’re taking a chance on missing something large or small that can keep you from getting your discharge, as well as losing assets that you may not have had to liquidate. Not to mention how handy an attorney is if any of the creditors decide to give you a hard time.

In the end, bankruptcy is simply a process that can work for you and give you some breathing room in order to get your finances back on track.

If you have decided to file bankruptcy, you may be wondering what the exact procedure will be. Sometimes it seems you’re doing a lot of waiting and knowing the schedule of events will help alleviate some of the worrying that will inevitably take place during your wait time.

Before Filing Bankruptcy

Whether filing yourself (which is not advised unless you’re familiar with bankruptcy) or meeting with an attorney, you will first want to gather all of your bills and statements for every creditor that you have. The best way of making sure you have all of the information for your creditors is to pull a credit report for all of the credit bureaus- TransUnion, Experian, and Equifax. You are eligible by law to receive a free report every 12 months, but don’t expect to get your free report from just any web site. The only authorized source according to the Federal Trade Commission is through www.annualcreditreport.com. Otherwise, you’re taking your chances on being trapped into paying for some other kind of service or credit report.

Be aware however, that all of your creditors may not appear on your credit reports. It is a good idea to make a list and make sure you have all of the necessary information.

In order to file bankruptcy, you will also need statements for any property including your home, bank statements, and check stubs where you are employed. If you receive Social Security, you may need something showing your source of income.

You will also need to determine whether you are filing a Chapter 13, which sets up a payment schedule to pay off your creditors, or a Chapter 7 where you do not make payments on your debt at all. This is one of the times it is helpful to meet with an attorney, as they can guide you in the direction that is best suited for your situation. A means test will calculate whether you qualify for a Chapter 7 bankruptcy and if in fact you do not meet the requirements, your attorney will advise you on your options.

Before you can file bankruptcy, you will need to obtain pre-bankruptcy credit counseling. This counseling must be completed 180 days before your bankruptcy can be filed, and must be through an agency that is approved by the Department of Justice’s U.S. Trustee Program. The counseling is usually accessible online or by phone as well as in person and may be an hour to an hour and a half long. The cost for this counseling is usually around $50. If you are unable to pay the fee you may qualify for free counseling.

Filing Bankruptcy

Once you have the counseling out of the way and you have all of your information together you are ready to file your bankruptcy with the bankruptcy court. This is another time it’s helpful to obtain the services of a law office. Bankruptcy petitions and schedules can often consist of hundreds of pages of paperwork, and if filing yourself, it’s easy to miss something integral to the process. Attorneys however, can take care of all of the filing of paperwork and making sure the court has everything necessary for your bankruptcy.

After the Bankruptcy Petition is Filed

When the petition has been filed, you will wait for your hearing date. The bankruptcy hearing is more widely known as the 341 Meeting, or the First Meeting of Creditors. This meeting takes place 20-40 days after your petition has filed and you must attend this meeting. It is usually the only hearing or meeting you will need to attend in order to file a bankruptcy, other than any meetings before filing that take place with your attorney.

The 341 Meeting is not to catch you and throw you in jail. Often the anticipation of the First Meeting of Creditors can seem a bit scary but it is simply a meeting that allows the Trustee to ask you under oath whether you have disclosed accurate information about your finances and property. Creditors may appear to ask questions as well, although it is a rare occasion when a creditor actually shows up at a 341 Meeting. This meeting is relatively short, and often involves a line of other bankruptcy filers who are there for the same reason. It is important that you attend this meeting. If you do not show up or do not bring the documents required (such as an I.D. and proof of Social Security Number), your bankruptcy may be dismissed.

After the First Meeting of Creditors

Creditors and the Trustee have 60 days after your 341 Meeting to challenge your right to discharge the debt. You will need to take another counseling course in order to obtain the discharge, but this one is slightly different from the initial credit counseling. The Debtor-Education Course consists of advice for budgeting and managing your finances and using credit wisely. It is usually longer than the pre-bankruptcy credit counseling but can also be taken over the phone, online or in person. The cost is around the same amount and can be from $50-$100. Again, if you are unable to afford the cost of the post-filing debtor education, you may be able to have the fee waived. Both courses provide certificates that include special numbers in order to avoid fraudulent counseling and certificates, so make sure you check with the U.S.  Trustee’s website to make sure the organization you are receiving counseling from is approved. You can expect your lawyer (if you use one) to recommend a reputable company.

If none of your creditors file an adversary proceeding to deny your right to discharge your debts, the court issues an order to discharge after the 60 day period has passed from your 341 Meeting. It can take up to 4 to 6 months after filing for bankruptcy to receive your discharge, but once you do you’re pretty much finished with the whole ordeal. Make sure to keep your paperwork and copies of the discharge because there will be creditors that somehow miss the memo and will contact you anyway. If this should occur, let them know when and where you have filed bankruptcy. If they need a copy of the discharge you may have to send them a copy as well, but note that it is illegal for the creditor to attempt to collect a debt after you have so much as filed the bankruptcy petition. If you continue to receive letters and phone calls from creditors after your discharge, be sure to forward those to your attorney, as it is illegal for them to continue to attempt to collect a debt that has been discharged.

Otherwise, your bankruptcy is complete and you’re able to move on to a fresh start. Make sure you take advantage of this opportunity for a clean slate and good luck.