Filing a case with the Bankruptcy Court can seem complicated and daunting, but it doesn’t need to be that way. Here are 10 steps to filing a bankruptcy case to help you know what to expect. I’m providing this list in the hope that if you know what’s in store for you, it’ll be less confusing and stressful. Of course, this list is no substitute for being represented by a lawyer. (I would never, ever recommend that you consider that you try filing bankruptcy without a lawyer, and so that is #1 below.) As you review this list, you’ll see that there are one or two “heavy lifting” items that your lawyer has to do, but that most of it is comprised of information that you have to provide. Fortunately, providing the information is not too difficult: pulling a few documents from your bank or employer, plus a few online searches, should do it.
Also, be aware that this is just a list of PRE-filing items. Once the case is filed, there will be a few more things for you to do. Fortunately, in a consumer bankruptcy case, most of the “big picture” decisions are made before the case is filed.
Here are the basic pre-filing steps:
- Get a Lawyer: This is absolutely the first step. Please don’t try to file a bankruptcy case without a lawyer. There are many documents to be filed with the Court, and if you fail to do so, your case will be dismissed. If your case is dismissed, a subsequent case becomes much more difficult. Moreover, the documents you file with the Court should present a coherent picture to the judge and the trustee. What are you trying to accomplish with your case? Are your assets protected from liquidation? How much are your creditors entitled to receive? These are all basic questions that should be very clear from a well-drafted bankruptcy petition.
- Determine Your Income: How much money do you make? From what sources? (e.g. employment, business, social security, retirement, rental, etc.) How much money did you make in each of the past 6 months? Is there going to be a change in the immediate future? The answers to these questions are used in the Means Test, which determines whether you are eligible to file a Chapter 7 case, or how much creditors must receive in a Chapter 13 case.
- Break Down Where Your Money Goes: You have the same ordinary & typical expenses that everybody has: housing, groceries, cell phone, gas, car insurance, things like that. But you also have expenses that are unique to you. Are you making payments on student loans? A payment plan to the IRS? Domestic support? Medical expenses? Care and support of a family member? The answers to these questions are also taken into consideration in the Means Test.
- List your assets: Do you own any real estate? A business? Vehicles? Retirement accounts? These are the big items a person usually thinks of as assets, but there are other, easily overlooked items: Does anyone owe you money? Are you the beneficiary of any trust? Do you have life insurance with a cash value? A security deposit with your landlord? An anticipated tax refund?
- List and categorize your debts: Who are all the people in the world who say you owe them money? I think of them as falling into 4 categories: 1) General unsecured debt: credit cards, personal loans, medical bills, deficiencies on repossessed vehicles, etc. 2) Secured debt: generally, mortgages and car loans. 3) “Priority” debt: Debts owed to the government, such as recent taxes, domestic support arrears, fines and penalties. 4) Student loans.
- Be aware of potential pitfalls: Are you a married person filing without your spouse? Do you own a business? Have you incurred any new debt recently? Is anyone suing you, alleging fraud? Have you transferred any property to, or have you paid off, any family members or business partners? Have you filed previous cases in the past? These are examples of the kind of thing that can very quickly make a bankruptcy case very complicated.
- Figure out what kind of case is right for you: This is a very big decision, and one you probably can’t make without the help of a lawyer. This is probably the first thing any lawyer you speak with is trying to figure out, and it should probably be #2 in this list, except that no lawyer will be able to give you an answer until the answers to numbers 2-6 have been fleshed out. Just be aware that for most people, there are two kinds of cases, Chapter 7 and Chapter 13. If you have modest income and modest assets and entirely unsecured debt, Chapter 7 is almost certainly better for you. If you are trying to stop a foreclosure, Chapter 13 is almost certainly better for you. However, most people are in between, and there are pros and cons to each kind of case, and you need a lawyer to help you figure it out.
- Take your pre-filing class: Everyone who files a bankruptcy case has to take 2 classes, one before you file, one after. People typically take them online. They take about 2 hours each. If you don’t take the pre-filing class, your case gets dismissed. If you don’t take the post-filing class, you don’t get a discharge. The certificate showing you took the pre-filing class must be attached to the petition when you file your case.
- Prepare the petition, schedules, and other documents: A typical consumer bankruptcy filing consists of around 40 to 60 pages. Much of the information contained therein is comprised of the income, assets, expense, and debt information discussed above. You have to swear under penalty of perjury that it is all true and accurate. As mentioned above, it is especially important that the documents present a coherent picture.
- Pay the filing fee and file the case: As of today, filing fees for a Chapter 7 case are $335, and $310 for Chapter 13. Most bankruptcy lawyers will file your case electronically, although it is possible to go to the clerk and file paper documents. In my practice, I do not file “skeleton petitions” (just a couple basic documents, with the rest needing to be filed later) unless it is absolutely necessary. And if you have done all the preparatory work listed above, it generally will not be necessary.
That’s it. Filing a bankruptcy case shouldn’t be confusing or scary. The hardest parts will probably be meeting with, paying, and getting documents to your lawyer. Don’t worry; most bankruptcy lawyers do this kind of work because they want to help people. They won’t bite. Perhaps more importantly, as lawyers, they have ethical obligations to you that other people don’t (such as debt consolidators and “foreclosure prevention” realtors). In my practice, initial consultations are free. If you need help, call or email me today.