Bankruptcy: A Fact File

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Bankruptcy: A Fact File

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A bankruptcy filing is a legal process that frees an individual or businesses from the financial obligation of repaying the debts they owe. In some cases, it’s an ideal opportunity for creditors to claw back some of the debts that are due to them. This process has its own pros and cons. So, it’s better to make every possible effort like doing a part-time job, making only necessary expenses, etc. to supervise your debt obligations before going ahead with bankruptcy. It’ll be better to consult a competent bankruptcy law firm like The Recovery Law Group ( or call 888-297-6203), before starting with the filing process.

Steps to File Bankruptcy

Here’s an outline of the entire process to help you file for bankruptcy successfully.

  1. Compile all your financial records like debts, assets, income, and expenses to properly understand your situation. It will also keep you prepared for anything that the court will ask for.
  2. Hire an experienced attorney to guide you through the entire process.
  3. Complete the mandatory pre-bankruptcy credit counseling within 180 days before filing bankruptcy. The United States Courts website lists the agencies that are eligible to conduct the counseling and will also provide you with a completion certificate which will be required for your filing.
  4. Take help from your lawyer to help you with all the required paperwork for the proceeding. As soon as it’s done, an automatic stay will stop your creditors from suing you or seizing your wages.
  5. Once the petition will be accepted, you and your creditors will be called for a meeting by a bankruptcy trustee to ask you questions regarding your case.
  6. Your eligibility to file for bankruptcy will be determined after a review of your paperwork by the trustee.
  7. In the case of Chapter 7 filing, the trustee will determine the need to sell your non-exempt property (jewelry, appliances, cars or home, exceeding the exemption limit) to repay creditors.
  8. Any secured debt will be returned to the creditors now, or you may also be allowed to redeem the collateral by paying its worth.
  9. You must take a debtor education course from an eligible credit counseling agency, before discharging your case.
  10. Your debts will be pardoned and no repayment will be required after 3-6 months of filing. Then, your case is closed.

Different Types of Bankruptcy

Chapter 7

It uses liquidation (selling of assets exempting some personal property) to repay the existing debts. The debtor can be an individual, a corporation, a partnership or any other business entity. You can consult The Recovery Law Group to know more about the federal and state exemption rules.

In order to be eligible for Chapter 7 bankruptcy, you need to have your income less than the median level income for your state. If not, you’ll have to pass the ‘means test’, which will determine your capability to repay the debt while managing your necessary expenses. If you have enough to repay the debt, you’ll have to file Chapter 13 bankruptcy.

Chapter 11

This bankruptcy usually involves a corporation or a partnership. It helps in the reorganization of business affairs, assets and debts by proposing a plan of action to repay the debt while keeping the business alive.

Chapter 13

This bankruptcy allows the debtor to repay the debt to the creditor in monthly installments over a period of 3-5 years. There is no liquidation of assets involved in it. The debtor can either be self-employed or unincorporated and should have unsecured and secured debts below $394,725 and $1,184,400, respectively.

The other rarely-used types of bankruptcies like Chapter 12 and Chapter 15 are for ‘family farmers or fishermen’ and cross-border cases, respectively.

Pros and Cons of Filing a Bankruptcy


  • It eliminates the tension of repayment to an extent by helping the debtors to clear some of their debts. Washing away the debts relieves the debtors of their financial burden.
  • The creditors and collection agencies stop pestering the debtors with constant phone calls or letters.


  • It is a costly process as it involves filing and attorney fees.
  • It has a negative impact on the credit report. Chapter 7 bankruptcy stays on the report for up to 10 years and Chapter 13 for 7 years, and that adversely affects the credit score.
  • Low credit score makes it difficult to apply for loans, get low rates of interest, get a new job, low vehicle insurance premium, start a new business or even get a new home.

Life Post Bankruptcy

Below are a few steps that might help you to improve your financial condition after bankruptcy and maintain your solvency.

  • Monitor your expenses – Implement a 50/30/20 budget, in which 50% is spent on basic needs (rent, food, etc.), 30% on wants (entertainment) and rest 20% goes into savings. Categorize your income and expenses as needs, wants and savings for a better understanding of the budget.
  • Emergency Fund – Set aside an emergency fund, to be used only under pre-decided circumstances. It can also aid in avoiding the usage of credit cards in emergencies.
  • Rebuild your Credit – Repay new or carry over debts (alimony, student loans, child support, tax claims, and other governmental debts) on time. Apply for new lines of credit, but not too many at once. Request a co-signer, with excellent credit, to apply for loans with you to get beneficial rates and terms. Use secured credit cards that use collateral to safeguard their financial interest.