What Happens When I Declare Bankruptcy?

Once you make the tough decision to

 declare personal bankruptcy and file the necessary paperwork with a licensed bankruptcy trustee, what happens next?

The most important thing for you to know is that you will go to bed at night and get up in the morning just as you did before you signed the papers. In fact, you might sleep better. Bankruptcy is not the end of life as you know it. Think of it as a chance to start anew.

There are some practical things you’ll be doing during the process. First, remember that in essence what you have done is turn over the management of your financial affairs to the licensed trustee who is handling your bankruptcy. Within five days of the filing your creditors will be notified and will no longer be able to attempt to collect your debts directly from you in any way.

You will need to work with your trustee to determine the value of your existing assets, including submitting property titles and deeds, tax returns, insurance policies, and a list of anything else you own that might be able to be sold to pay off your creditors. You should know there are generous exemptions mandated by law which allow most people to keep much of what they own.

You’ll need to submit monthly income statements as well as expense statements to the trustee and make surplus income payments to be distributed to your creditors, if you have any surplus income. Surplus income is anything $200 over the expense/income family and individual guidelines set by the government.

You’ll be required to attend two credit counseling sessions at the direction of the trustee. The first takes place within 60 days of the filing and is designed to teach money management and budgeting principles to keep you from financial difficulties in the future. The second counseling session takes place within 120 days of the filing and involves a detailed examination of how you got into trouble in the first place to prevent a recurrence. As surprising as it might seem, many consumers who can’t shake old spending habits find themselves declaring personal bankruptcy multiple times.

If you move or there is any change in your financial situation during the bankruptcy process like job loss, promotion, or pay increase; you’ll need to communicate that to the trustee immediately.