Bankruptcy is a legal process that lets people who cannot pay their debts get relief from some or all of them. Here is how it works in the United States.
- Assess your financial situation. Decide whether bankruptcy is the right option. A financial advisor or bankruptcy attorney can help.
- Choose the type of bankruptcy. Most individuals file under Chapter 7 (liquidation, subject to a means test) or Chapter 13 (a repayment plan over three to five years). Each has its own eligibility rules and outcomes.
- Complete credit counseling. Within 180 days before filing, you must complete a credit counseling course from an approved agency.
- Gather documentation. Collect income statements, bank statements, tax returns, and a list of your debts and assets.
- Prepare and file the petition. Complete the required forms and file them with the bankruptcy court. There is a filing fee, which can be waived or paid in installments in some cases.
- Attend the 341 meeting of creditors. The trustee runs this meeting, and your creditors may attend and ask questions about your finances and your filing.
- Follow the trustee's instructions. The trustee assigned to your case oversees its administration and will tell you what is needed.
- Complete a debtor education course. After filing, and before your debts can be discharged, you must complete a debtor education course from an approved agency.
- Receive a discharge. If your case succeeds, you receive a discharge of eligible debts. Some debts, such as most student loans, child support and recent taxes, usually survive.
- Rebuild your credit. Bankruptcy will lower your credit score, but you can rebuild it over time.
Bankruptcy law is complex, and the process can be time-consuming and emotionally draining. It is worth getting advice from a qualified attorney before you file.
