When faced with overwhelming debt, it is not uncommon for people to consider filing bankruptcy on their own. This is a understandable considering that hiring a bankruptcy attorney adds even greater financial burdens to an already stressful situation. Fortunately, bankruptcy law does allow individuals to represent themselves without an attorney. In legal terms, this is known as a “pro se” filing. While this option may seem like a way of saving expenses, it is extremely difficult to do for anyone not familiar with bankruptcy law and proceedings. Before considering a do-it-yourself bankruptcy, it is vital to understand the basic types of bankruptcy available to individuals and the complex proceedings and documents required for a successful filing with the courts.
The Basics of Bankruptcy
Most individuals file for bankruptcy under either Chapter 7 or Chapter 13. While certain rules vary between states, all bankruptcy filings follow the same basic procedures and utilize the exact same documents. Taking the time to learn the basic concepts of bankruptcy can mean the difference between resolving an overwhelming debt situation and creating even greater financial problems.
Chapter 7, also known as a liquidation, is the most common form of bankruptcy. It allows individuals to give up assets in exchange for the discharging of debts. This type of bankruptcy is normally used by those with little or no assets, limited incomes and high debt loads. Under this filing a court trustee gathers and sells all non-exempt assets and distributes the proceeds to creditors. An individual is allowed to retain certain exempt properties, like a primary residence, but all other assets must be liquidated in accordance with Federal & State exemption laws.
Chapter 13, also known as a wage earners plan, allows individuals with large assets and regular incomes the ability to renegotiate late payments to creditors while protecting their assets under court supervision. This option is best for those who are in short-term financial trouble, but have the ability to repay creditors within a three to five year period. In many ways, a Chapter 13 filing acts like a debt consolidation process in that an individual makes payments to a court trustee who then distributes the funds to creditors in accordance with the terms approved by the bankruptcy court.
Since 2005, there are two requirements that all individuals must meet before filing bankruptcy petitions. One is undergoing a “means test” to determine if someone is eligible for a Chapter 7 filing. This test is used to evaluate how a persons incomes and expenses compare to the standards set for regional areas by the IRS. Depending on the results of this test, individuals may only be eligible for a Chapter 13 filing. The other requirement is that anyone seeking bankruptcy must complete a credit counseling course before they can file a bankruptcy petition with the courts.
Filing for Bankruptcy
All types of bankruptcy filings, regardless of the state, utilize the same documents and supporting materials. These free documents can be easily found on numerous websites or obtained directly from the Office of the Clerk at any bankruptcy courthouse. The documents include a petition that is a request to the court for consideration of the case, a list of all creditors, documentation of incomes, proof of a means test and credit counseling, requests for asset exemptions plus any other relevant information.
Once the petition and supporting forms have been completed, they can be filed with a bankruptcy court. A filing fee must be paid at the same time. These initial documents are extremely important because it is through the information provided that the court trustee assigned to a case will determine if a filing is qualified for a bankruptcy hearing. All information about incomes, creditors, assets and income verifications must be thorough and completely honest. Failure to fully disclose any pertinent information could result in a charge of bankruptcy fraud. Once a filing has been accepted, a preliminary hearing date will then be set by the court.
Complexities of a Bankruptcy Filing
While completing and filing bankruptcy cases “pro se” is a straightforward process, understanding the complexities of bankruptcy laws and the technical proceedings of courts can often be overwhelming for those not familiar with the process. Bankruptcy courts are largely bureaucratic institutions that operate within very stringent guidelines. An individual representing themselves must understand not only Federal laws governing the case, but also state laws that govern aspects like which assets that can be requested for exemption from liquidation. They must also understand how to file all the petition documents, substantiating documents, requests for exemptions and other special consideration requests to the court in the correct sequence and at the correct time. Failure to strictly comply with any court guidelines or proceedings can lead to an immediate dismissal of the case or result in the loss of important assets like a primary residence.
A wise option in a do-it-yourself bankruptcy is to retain an attorney strictly as a consultant. That way, an individual can save money by completing and filing documents with the court “pro se”, yet still have expert advise should questions arise during the process.
