You’ve probably heard that you can get rid of your credit card debt by filing for bankruptcy. This is true, for the honest but unfortunate debtor.
Overwhelming credit card debt is one of the top three reasons people file bankruptcy, the others being job loss and medical debt. But there is more to bankruptcy than just listing your creditors and paying a filing fee. Let a prominent bankruptcy lawyer in Philadelphia tell you how you can navigate the bankruptcy process to successfully clear credit card debt and get a fresh start.
Preparing to File Bankruptcy
Information and Documentation Needed
In order to prepare your petition and schedules, you will need to gather information about your debts and your income from the following documents:
- Last two years of filed federal income tax returns;
- Last six months of paystubs;
- Credit reports from each of the three credit agencies;
- Copies of all bills currently due;
- Copies of any documents sent by creditors or collectors;
- Copies of any collection lawsuit against you.
Evaluating Your Assets
You must provide a list of everything you own, even if it is not worth much. For bank accounts, the last six months of statements will suffice. For real property and automobiles, an online market estimate may suffice. For your remaining clothing, household goods, and personal items, list what you would expect to pay at a yard sale. For example, a two-bedroom, one-bath house with a dining room might contain $300 worth of furniture. A closet of clothes may be worth $150.
If you have jewelry, antiques, art, or collectibles of any kind, an appraisal may be required.
Calculating Your Expenses
The schedules require that you provide monthly expenses, so if you have weekly expenses such as groceries or commuting, multiply that number by 56 then divide by 12 to get your monthly cost.
Your bills and the last six months of bank account statements will help you list your expenses as well, such as:
- Rent or mortgage;
- Car loan or lease payment;
- Utilities (take an average);
- Cable/internet/cell phone.
Don’t forget to include medical copays, personal care like haircuts, holiday gifts and travel, and tithing to a religious institution if applicable.
Applying the Means Test to Your Income
Only people earning a certain amount of income relative to their family size can file bankruptcy under Chapter 7. If a debtor’s income does not pass the means test, they may have to file a Chapter 13 bankruptcy case and pay a portion of your debt to creditors over a three- or five-year plan.
Taking the Credit Counseling Course
The bankruptcy court website will have a list of all court-approved course providers, and some providers offer a discount if you take both this pre-filing course and the post-filing financial management course with them.
What to Expect When You File Chapter 7 Bankruptcy
Your Docket Number and the Automatic Stay
Once you file your petition, schedules, list of creditors, and certification of completion of the credit counseling course, and you pay your filing fee, you will receive a docket number identifying your case.
Creditors will also receive notice of your filing. The automatic stay prevents them from instituting or continuing any collection efforts against you, including sending letters, calling you, suing you, continuing a lawsuit, garnishing your wages, or levying on your bank account. If a creditor persists in collection efforts, give them your docket number and they should cease.
Your 341(a) Meeting of Creditors
A day or two after you file, your 314(a) meeting of creditors will be scheduled. You will meet with the Trustee and verify your identity and answer questions about your financial situation under oath.
The 341(a) meeting is also an opportunity for any creditor of yours to appear and ask you questions about the debt you owe them. This typically happens if there is an allegation of fraud on your part in incurring the debt, or if there is a dispute over whether the debt is secured or unsecured.
Usually, credit card debt is unsecured. However, there are some credit cards that, if used, grant the lender a secured interest in the item purchased. For example, if you purchase jewelry with an in-store credit card, that is likely debt secured by the jewelry. Depending upon when the purchase was made and how valuable the jewelry is, the lender may want it back.
Other common in-store secured purchases include:
- Heavy machinery or equipment
- Home improvements, such as a new roof or windows
Your Financial Management Course
Any time after you file, you can take this second course online. Be sure to file the certification of completion. Some providers file this for you.
Receiving Your Discharge Order
After the deadline for creditors to object to discharge has passed, the court will automatically enter a discharge order. This means that you are no longer responsible for paying back any non-priority unsecured debt, which usually includes credit card debt, medical debt, and personal loans.
Debts that will not be discharged include:
- Child or spousal support
- Most government fines or fees
- Most taxes;
- Most student loans
If you are honest and upfront about your financial situation and what led you to file bankruptcy, your case should proceed smoothly, and you should achieve your goal to clear credit card debt through bankruptcy. Good luck!
About The Author
Veronica Baxter is a legal assistant and blogger living and working in the great city of Philadelphia. She frequently works with David Offen, Esq., a busy Philadelphia bankruptcy lawyer.