Table of Contents
How to File for Bankruptcy in 10 (Cheap) Steps
1. Talk to a Bankruptcy Attorney
2. Gather Your Paperwork
- Tax returns
- Proof of income
- Mortgage statements or rent receipts
- Documentation of other debts
- Vehicle registration, proof of value, and insurance
- Statements from your bank, retirement, and other financial accounts
- Documentation of other recurring costs, like alimony or child support
3. Complete Your Initial Credit Counseling Requirement
4. Complete the Bankruptcy Forms
5. Pay the Filing Fee
- Apply to pay the fee in installments. You’ll need to submit Form 103A to apply to pay the Chapter 7 filing fee in installments. You’ll need to propose a schedule with no more than four payments and complete the payments within 120 days of filing.
- Apply for a fee waiver. If your income is below 150% of the federal poverty line you can apply for an exemption that waives the fee. You’ll need to submit Form 103B. The current federal poverty line for a family of four is $27,750 per year, so if your income is below $41,625 you will qualify. Poverty lines vary with family size and are higher in Alaska and Hawaii; check your poverty line here.
6. Make Copies of Your Bankruptcy Paperwork
- All required forms for your bankruptcy petition.
- The completion certificate from your credit counseling course.
- Your recent pay stubs.
- Any application for a fee waiver or installment plan
7. File Your Completed Forms
You will need to file your forms at the courthouse. You’ll have to pay your filing fee at the same time. You should plan to pay with cash or a check, credit card payments are usually restricted. You’ll need to do this in person during business hours, so you could lose wages if you have to miss work. You also will likely have to pay a parking fee.
The Clerk of Courts will provide you with your case number, the name of your bankruptcy trustee, and an appointment for a meeting with your trustee and your creditors. An automatic stay will go into effect, which will halt any debt collection efforts. Wage garnishment, foreclosure, and eviction proceedings will also stop.
8. Mail Your Documents to Your Trustee
The bankruptcy court will appoint a trustee to oversee your case.
You will have to provide copies of your bankruptcy paperwork to your trustee. This will cost you anywhere from $8 to $15 depending on the size, weight and distance. Make sure to pay extra to get a confirmation of receipt.
The role of the bankruptcy trustee varies with the type of bankruptcy you file.
- A Chapter 7 bankruptcy trustee will review your petition, supervise a meeting with creditors, and supervise the sale of any non-exempt assets and the distribution of the proceeds to creditors.
- A Chapter 13 bankruptcy trustee will work with you and your creditors to develop a repayment plan, usually over three to four years, and supervise the implementation of the payment plan. You will pay the trustee, who will distribute the proceeds to creditors.
9. Take a Second Bankruptcy Course
Before your bankruptcy case is resolved, you must take a second course from an approved counseling agency. This will be a debtor-education course focused on helping you understand the causes of your bankruptcy and how you can improve your financial management in the future.
The course will cost between $10 and $50. You can apply for a fee waiver if your income is below 150% of the federal poverty line.
10. Attend Your Meeting of Creditors
The creditor’s meeting or “341 meeting” gives creditors a chance to represent their own interests and explain why your debt to them should not be discharged. It usually takes place about a month after you file. The court will set the date, time, and place and notify you. You will have to attend in person. You’ll once again have to pay bus fare or parking expenses, depending on where you live, and could have some lost wages if you have to miss work.
Your trustee will verify your identity and ask some basic questions about your case. You will need to bring the following documents, and it will cost you some money if you don’t already have them.
- Government-issued ID
- Your Social Security card
- Pay stubs from the last 60 days
- Recent bank statements
- Any other documents requested by your trustee
While you may have to pay for bank statements, note that you should never have to pay for a replacement Social Security card.
Finally: Wait for Your Notice of Discharge
The notice of discharge is the formal conclusion of a bankruptcy proceeding. The debts that are discharged no longer have to be paid, giving you a fresh start and a chance to rebuild your finances.
If you need to file for bankruptcy and have no money, check out this video for more information on how to file on the cheap.
What is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?
Chapter 7 Bankruptcy
Chapter 13 Bankruptcy
- Mortgages, car loans, and other secured debts.
- Tax debts of government fees.
- Child support or alimony.
- Court-ordered payments.
- Most student loans.
Filing for Bankruptcy Will Have a Few Costs
Bankruptcy Will Have Longer-Term Costs as Well
A Chapter 13 bankruptcy will remain on your credit report for seven years. A Chapter 7 bankruptcy will remain on your credit report for ten years. Either will have a significant impact on your credit score, which will cost you more in the short run because you’ll have to pay higher interest rates. It will also raise the cost of some other purchases, like car insurance because insurance rates are tied to your credit score. There are many advantages to having good credit. But the impact will decline as time passes. Recent records have more impact on your credit score than older records
The damage to your credit will not be permanent — though there are some damages (a charge-off, for example) that could last forever. Your debts will be discharged and you won’t have to pay them, which will give you some financial flexibility and lower your cost to borrow money. It will take time, but with good financial management, you can rebuild your credit and eventually your costs to borrow will decline.
The Bottom Line
Bankruptcy is usually considered a last-ditch way to repair finances, but filing might make more sense for your financial situation than other debt consolidation methods, particularly if you regularly find yourself turning to payday loans to get by. And if you’re struggling just to make it each day, there are a few resources to check out while you get your bankruptcy case in order.
You may not be able to file bankruptcy for free, but the steps above should help you reduce the cost. Just be sure to consult a bankruptcy lawyer to ensure that you meet the qualifications and it’s truly your best option.
A car loan is a secured loan: the vehicle is collateral for the loan. Your car loan can be discharged in bankruptcy, but your lender will repossess the vehicle. If you want to keep the car you will have to keep making the payments.
If you know anyone who has been through bankruptcy, ask for a referral if they were happy with their lawyer. If you don’t, the National Association of Consumer Bankruptcy Attorneys or your state’s bar association can refer you to bankruptcy attorneys in your area. Most of these lawyers will offer a free initial consultation, and you should talk to several before selecting one.
If you can’t afford a lawyer, you can still use free consultations to assess your situation. Search for free legal clinics or legal aid societies in your area, and check your state bar association for lawyers offering pro bono services. If you are considering Chapter 7 bankruptcy you may be able to use Upsolve instead of hiring a lawyer.
Chapter 11 bankruptcy is typically used by corporations or large businesses. It is sometimes called “reorganization bankruptcy” because it allows a company to stay in business while restructuring its debts. Chapter 11 is the most complicated and expensive form of bankruptcy. Chapter 7 and Chapter 13 bankruptcies are used by individuals; Chapter 11 is used by businesses.