Bankruptcy: A Big Decision

Managing our finances is our top priority. Staying solvent, i.e. the ability to pay the bills on time is the key issue that confronts tens of millions of individuals today. Easier said than done! Sometimes the income is not sufficient enough due to macroeconomic developments (like inflation and recession), or personal problems (like sudden or protracted illness). Worst is when you loose your only source of income. What would be your option if you know for sure that there is no way you can pay the pursuing creditors? You will have to file for bankruptcy!

The decision is painful and overwhelming. Loosing the battle doesn't mean loosing the hope though. With perseverance, this too shall pass like any painful phase of life.

Your determination is the key to your own respite and peace. Despite all your ethical and responsible conduct, you might get caught into a predicament due to force majeure.

God forbid, if ever you are caught into a financial quagmire, your first step should be to seek the professional help of a credit councilor or a bankruptcy lawyer. A good credit councilor should be able to solve your problem or at least refer you to a competent bankruptcy lawyer. Although the initial consultation is free of cost, your decision should be based on core competence and track record of such lawyer and his/her devotion to your problem. A good bankruptcy lawyer will act on your behalf to decide the type of bankruptcy to file for, and will complete legal formalities in stipulated time. This is your only way to leave yourself with enough energy to fight your core issue than to be bogged down by paperwork. Let's now discuss some common types of bankruptcy declarations.

If you opt for complete liquidation of liabilities, you will file for bankruptcy under Chapter 7. This will absolve you of any repayment of debt, current or future. However, if you choose to repay some of your creditors with a tentative schedule of repayment, you will file under Chapter 13.

Bankruptcy laws are not uniform across the United States. Consult your lawyer for reliable information in this regard. You will have to conduct a series of meetings with your lawyer which is covered in lawyer's total fee. The process can be initiated with a fraction of total fee and full payment is due before filing of declaration.

The process entails lengthy paperwork. Bear in mind that any misstatement during bankruptcy filing is a federal crime punishable by law. Hence prepare your list of assets very carefully. If you are not calm and collected, seek trusted assistance. Start with a list of your possessions. Assign a value and fare market price to each. You can take general percentages used by the lawyer fraternity.

You will have to declare your income during past several months along with the source of income. Definition of your income includes core wages, commissions, customer payments, and tax refunds.

Another requirement is to declare secured and unsecured liabilities. Generally you will declare bankruptcy on your credit card(s), medical bills, loan, and some other obligations. However you will not do so for secured debt because you are using the underlying asset (car or home, for example). Be reminded that some obligations, like tax, children support, and student loans, are not covered under bankruptcy law.

To facilitate the initiation of "Notice of Commencement", you need to provide complete list of your creditors, their mailing address, and outstanding liability. You can not simply take the mailing address from your statement of liability because mailing address can be different from contact address of the creditor. You will have to get in touch with your creditor for the right information. While doing so, keep a record of who have you contacted and when.

Upon successful completion of this step, case number will be allotted to you and the "Notice of Commencement", a de facto Automatic Stay, will be issued to all your creditors at the contact address you have declared. This document effectively prohibits a direct contact between you and your creditor without involving your lawyer. Hence information related to your creditors is handy as well as critical in ensuring the smoothness of the process. Despite your wholehearted efforts, if Notice of Commencement has failed to reach any creditor, you can simply pass on the date and case number of your insolvency declaration along with contact information of your lawyer to your uninformed creditor(s).

If you have declared complete insolvency under Chapter 7, the Bankruptcy Court will appoint an independent representative (called Trustee) to act on its behalf. The trustee ensures the transparency of your information to facilitate true justice to all parties. In addition to ensure transparency, the trustee also ensures that you possess assets only to the extent allowed by bankruptcy laws. To this end, he/she might have to visit your home. If you are found possessing more assets than allowed by court, your redundant assets will be auctioned under the supervision of the trustee.

The Court summons you to a Meeting of Creditors in the presence of your lawyer at the end of stipulated time frame for such lawsuits. Court findings to the case facts are shared with all parties concerned. If you are not found having any assets that can be sold to make good the obligations, your lawsuit is "discharged" by the Court absolving you of any repayment obligation whatsoever.

Bankruptcy then becomes a part of your credit record for next 8 to 10 years' time. This is the time to plan, rebuild, and fortify your financial management to avoid another mishap for the rest of your life.