I think we're out of options and need to file for bankruptcy. What should we expect? How does filing for bankruptcy work?

Bankruptcy should be considered and planned far before the actual bankruptcy petition is filed. Once filed, bankruptcy is a relatively easy process, but to do it right requires developing a legal and financial strategy ahead of time to make sure you take full advantage of the options provided you by bankruptcy laws and bankruptcy protection.

The first thing to do is talk to a bankruptcy lawyer to get advice regarding your financial situation, homeowner issues, what property is important to you, what type of bankruptcy would be best and how to minimize the impact of bankruptcy on your financial future. If you would like to get some advice from a bankruptcy lawyer, click here to contact a few bankruptcy lawyers in your area, otherwise, read on for some basics of filing bankruptcy.

Planning to File for Bankruptcy

Before filing bankruptcy, you and your bankruptcy lawyer will have a few sessions to evaluate you financial situation. It is likely that a combination of overextension of credit, income loss and or mortgage problems have lead to an unmanageable financial situation.

Your bankruptcy attorney will take into account all of these considerations and determine the best legal strategies to protect your assets while minimizing you repayment "exposure". Bankruptcy should be thought of as a way for the US Court to step in between you and your creditors to force them into accommodating your financial situation with regards to your ability to pay back debts that you have assumed.

You will probably want to keep a car for which you assumed debt, as well as keep you home, whether a home you've purchased or an place you are renting. The bankruptcy court can help you in both of these aspects. Additionally, you probably have a lot of credit card debt and personal loans that are making it impossible to keep up on monthly payments. Bankruptcy, whether chapter 7 or chapter 13, can usually eliminate these "unsecured debts" so that you can focus on the more important payments like rent, a mortgage and your car loan(s).

Once you and your lawyer have determined the best way to protect you and your family, you will need to attend the one to two hour pre-bankrutpcy counseling session. After this has ben competed, you will file your bankruptcy petition, as well as all the required financial schedules with the Court.

Filing For Bankruptcy

Once all the pre-bankruptcy planning and counseling has been completed, your attorney will prepare all the required paperwork and file the petition for bankruptcy protection with the local court of jurisdiction.

Once the bankruptcy petition is filed, an "automatic stay" goes into effect which stop all creditor collection attempts, foreclosure proceedings and any wage garnishments. This will give you and your bankruptcy attorney time discuss your situation further and figure out the best legal options to protect you and your family.

You will be required to attend at least one court hearing. During this hearing, called the 341 meeting of the creditors, representatives from all of the companies to which you owe money will attend and attempt to collect their money.

Fortunately for you, the bankruptcy court usually favors the debtor, and it will be very difficult for creditors to get anything outside of what you and your attorney have planned.
Depending on the type of bankruptcy you have filed, the bankruptcy process itself may take anywhere from two months to five years. If you have a steady income, and you file for chapter 13, you will work out a repayment plan to which you must adhere until completion.

If you do not have a steady income, you will likely file for a chapter 7 bankruptcy, and your unsecured debts will be "wiped out" and some of your property will be liquidated to generate cash to repay some debt.

There are benefits to both types of bankruptcy, and your lawyer will advise you on the best approach. Ultimately, it is your decision and eligibility based on your income that will determine which type of bankruptcy is best for you.

Please see the links below to learn more about some of the details involved with filing for bankruptcy. If you would like to get a free case evaluation from some local bankruptcy attorneys, click on the "talk to a lawyer" button.

Good Luck!