Figuring out how to file a bankruptcy petition means also identifying what sort of bankruptcy you'd prefer to go through. Under Chapter 7 bankruptcy law in the U.S., petitioners have the right to ask that their assets be liquidated to satisfy the demands of creditors. If you're not sure whether this is a good choice for you, here are three things to consider before you file.
Will You Be Financially Wiped Out?
The scariest thing about a Chapter 7 petition is that it sounds like literally every possession you own will be sold. This is not the case. The court has broad leeway to declare items exempt, but a judge will exercise that authority with care.
If you have a sports car and a work truck, for example, the court can declare the work truck exempt because it allows you to make an income. Notably, the vehicle has to serve a practical purpose in either conveying you to work, such as a daily driver, or in conducting your work, such as a contractor's van. Generally, practicality is always the best argument when asking for an item to be exempted.
Are All Your Debts Cancelled?
Generally, once creditors have received as much in cash as possible from the sale of a debtor's items, those debts are permanently canceled. This means further collection is not allowed. Unsurprisingly, certain types of government-backed debts, especially student loans, cannot be cancelled by this method.
One thing you absolutely want to do before filing a petition is to verify that all your debts are included in the brief. If you overlook a particular bill, that creditor will have the full right to continue to pursue it after your bankruptcy filing is made. Folks who aren't sure what all they owe should contact their creditors and obtain a detailed accounting of their debts.
Will You Be Eligible for Chapter 7?
A filing under Chapter 7 bankruptcy law requires that a person is in a relatively dire financial situation. Essentially, you must be able to demonstrate that you'll never be able to pay off your debts no matter how long you keep paying.
A potential alternative is filing for a restructuring of your debts. In this process, the creditors take a small haircut, but you have to enter a repayment plan with a deadline for completion. Those who restructure and fail to do so, though, can still file under Chapter 7 at a later time.