Filing for bankruptcy because of overwhelming credit card debt is a big step with long-lasting effects on your credit, but it can be the right step for some.
Keep in mind that bankruptcy will likely tank your credit score and can hang around on your credit report for seven to ten years. Plus, bankruptcy won’t make all your debts go away. You’ll still need to pay things like your student loans and alimony payments.
If you’re considering filing for bankruptcy, here’s a general overview of the process. But before you do anything, you should seek legal advice from a bankruptcy attorney for your specific situation.
Understand your options
- Chapter 7 Bankruptcy wipes out unsecured debts like credit cards but may require selling some assets.
- Chapter 13 Bankruptcy lets you keep assets but pay back debts over 3-5 years through a structured plan.
Prepare your documentation: Gather all your financial documents including debts, assets, income, and monthly expenses. This is crucial for filing and determining your eligibility.
Complete credit counseling: You need to complete a credit counseling course from an approved agency within 180 days before filing. It’s mandatory and might offer alternatives to bankruptcy.
File your bankruptcy petition: With your attorney’s help, file a bankruptcy petition in court. This includes detailed forms about your financial status and automatically halts most collection actions against you (automatic stay).
Attend the 341 meeting: A court-appointed trustee will oversee your case. You’ll meet this trustee and possibly your creditors in a meeting where you’ll answer questions about your finances and the filed documents.
Await discharge
- Chapter 7: Discharge usually arrives within months.
- Chapter 13: Discharge usually comes after you complete the repayment plan.
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