Personal Bankruptcy – What You Should Know Before Filing For Personal Bankruptcy

Jurisdictions allow individuals to declare their bankruptcy through a procedure called personal bankruptcy. That simply means that you cannot afford to pay your debts any longer and requires removal of any such obligation by giving up control of your financial assets. You can either do it through a debtors’ petition (doing it yourself) or through a creditors’ petition (someone who you owe money can do so).


The process of personal bankruptcy filing entails the following:

1. You need to find a trustworthy bankruptcy attorney. This can be done either by asking people in your professional or personal network or by contacting the Lawyer Referral Service sponsored by your State Bar Association.

2. Gather all the financial documents like outstanding bills, paychecks, bank statements, mortgage copies, tax returns and any other such documents. These would be required by the attorney for detailed analysis of your financial condition. Your petition (bankruptcy paperwork) should list all the creditors who you owe money.

3. Check for all the secured and unsecured debts that are to be paid. Your income details in the last six months need to be disclosed to the attorney. This will determine the chapter of bankruptcy that you need to file.

4. Once all the financial details are disclosed, you may have to file a Chapter 7 (liquidation bankruptcy) or a Chapter 13 (adjustment of debts) petition. The petition needs to be signed in various places attesting that the information disclosed is true.

5. The petition is then filed online with the district bankruptcy court. In case you cannot find an attorney, the above procedure needs to be carried out personally.

Chapter 7 pertains to liquidating of all assets to pay debts to creditors and Chapter 13 entails charting out a repayment plan to pay off debts to the creditors within a stipulated timeline of five years through the monthly wages of the debtor involved. These are the two personal bankruptcy laws i.e. the kinds of personal bankruptcy pertaining to individuals filing for bankruptcy.

Under Chapter 13 therefore, it is necessary that correct information and proof of salary are provided for payment of debts in given time, failing which the individual’s current plea of bankruptcy will be dismissed by the court and he/she may have to file bankruptcy again.

Under Chapter 7, the debtor needs to assess and disclose all his financial assets, like investments, homes, cars, personal possessions, savings account etc. Depending upon the State guidelines, there are exemptions about assets that the debtor can keep. Post liquidation of financial assets like investments they are handed over to the court for sale. The money received from sale of this property is then used to pay off debts. In case there are some debts that cannot be paid off, they are released off and the debtor is free from any such payment obligation. He/she can therefore begin afresh and is free from any debts (but there are conditions).

Under Chapter 13, the individual can plan up his debt repayment schedule over a stipulated time of three to five years. This debt is paid off through the regular wages that the individual may be earning. The advantage of filing for Chapter 13 is that you can save your valuable assets like home, car or other valuables and still manage to repay the debts. The repayment schedule is tracked by the courts so there is no way escaping the repayment plan. It is also the most common way of paying off debts over a period of time and still securing the financial assets that you may have gathered over their lifetime.

Despite the court getting charge of your valuable financial assets, you don’t lose everything you have. The Bankruptcy Code recognized the need for basic possessions and assets for a debtor to move forward post bankruptcy. Personal bankruptcy exemptions like property exemptions are therefore given. While filing your petition you need to specify the list of properties that you need to be exempted. However you need to mention the following:

  • A description of each property that you want exempted.
  • The law pertaining to its exemption.
  • The market valuation of that property.

In order to file personal bankruptcy you must download and use the personal bankruptcy forms as available with the US Courts website. Your lawyer can also help filing the personal bankruptcy forms.

Filing personal bankruptcy can be emotionally overwhelming, hence wisely choose your lawyer or attorney who you feel comfortable interacting with and can carry out the entire process smoothly.

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