How to File Bankruptcy

Perplexed about how to file bankruptcy? You aren't alone. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 created plenty of confusion. Nearly five years later, most people are unaware of the restrictions and requirements of the new bankruptcy laws.

Understanding the intricacies of how to file bankruptcy often requires the services of a bankruptcy lawyer. While retaining legal representation is not required, few people are able to undergo the process alone. The complexities of BAPCPA could place debtors who file without legal counsel at risk for having bankruptcy petitions rejected or dismissed.

Debtors must first decide which bankruptcy chapter to file. In total, six bankruptcy chapters exist and include: Chapter 7, 9, 11, 12, 13 and 15. Chapter 7 and 13 are personal bankruptcy chapters, while the remaining offers financial protection to business partnerships, corporations and family farmers and fishermen.

Chapter 7 bankruptcy is frequently referred to as 'liquidation bankruptcy' because debtors must liquidate assets to repay outstanding debts.

Chapter 13 bankruptcy is commonly known as 'reorganization bankruptcy' and requires partial repayment of debt. Debtors can keep assets such as their house and automobile by establishing a repayment plan approved through the court. Chapter 13 payments typically extend for two to three years.

During the bankruptcy repayment period debtors are prohibited from incurring new debt without court approval. Chapter 13 payment plans can place a heavy financial burden on debtors and cause them to fail out of bankruptcy.

When debtors are unable to adhere to bankruptcy payment plans, creditors can petition the court seeking dismissal. The bankruptcy judge can either allow debtors to file Chapter 7 or dismiss the petition. When bankruptcy petitions are dismissed, debtors no longer have court protection and creditors can commence with collection action, including foreclosure.

Certain debts cannot be discharged under Chapter 7 or negotiated under Chapter 13. These include past due taxes, outstanding child support, lawsuit settlements, and government guaranteed or funded student loans.

New bankruptcy laws require debtors to submit to the 'means' test. This financial tool compares debtors' income to the state median income level and determines the amount of debt to be repaid and which bankruptcy chapter must be filed. Individuals earning more than median income level must file Chapter 13. Individuals earning less might qualify for Chapter 7.

Individuals in need of bankruptcy protection can locate information and resources through the Department of Justice U.S. Trustee Program at Justice.gov. The website offers a wealth of bankruptcy information, along with forms, resources, approved credit counseling agencies and debt education providers.