Unfortunately, many see bankruptcy as a dirty word. In reality, anyone can fall on hard times. Bankruptcy offers us a financial reset button. It can restructure or discharge most, if not all, debts. However, it is important to understand the process.
The most common type of individual bankruptcy is a Chapter 7 bankruptcy. In a Chapter 7, the filer’s unsecured debts can be eliminated. These debts are those that are not secured by an asset, like credit cards, medical bills, etc. For secured debts, like homes and vehicles, depending on ability to pay, filers can keep these items or give them back.
It is also important to note that a key distinction for bankruptcy is that it is a federal system, not controlled by North Carolina courts. This means that filers file with their local federal court.
Before one files for bankruptcy, residents must get a special bankruptcy briefing. This is attained from an approved nonprofit budget and credit counseling agency. This does not need to happen before consulting an attorney, and one’s attorney can actually provide an agency list.
After attaining a special bankruptcy briefing, the bankruptcy case officially begins with the filing of the bankruptcy petition with the local federal bankruptcy court (with a filing fee). This petition must disclose all income and assets, along with expenses and current liabilities (i.e., debts). These are done utilizing court-authorized forms, which must be signed under penalty of perjury.
The petition must list everything, no matter where located or how much owed. It is illegal to leave anything out. This does not mean that all assets listed will be sold or given back, and in Chapter 7 bankruptcies, some property is exempt.
After the petition is filed, an approved personal financial management instructional course must be completed. Then, as required by the bankruptcy judge, the filer must attend all hearing, and in consultation with the filer’s attorney, cooperate with bankruptcy trustee (who administers the filer’s estate). As needed, tax returns and other financial documents may be requested by the court, trustee, and creditors, but the filer’s attorney will help the filer navigate these relationships.
As one can see from this very brief overview, the bankruptcy process is complicated. For those that need the fresh start though, it is well worth the journey.