How to File for Bankruptcy

The debt keeps piling up and the creditors won’t stop calling. Suddenly you’re considering something you never thought you would—bankruptcy.

If you feel backed into a corner by debt, we see you. And we know you’re scared. But bankruptcy isn’t a decision to make lightly.

We’ll talk you through what you need to know about filing for bankruptcy, so you can be as prepared as possible.

When Should You File for Bankruptcy?

Bankruptcy is a long, emotionally-exhausting process. So, you need to be 100% sure it’s the right choice for your financial situation.

Many people panic and file as soon as the debt collectors start calling. But even if you’ve got a lot of debt, bankruptcy is rarely your only option. 

In fact, you shouldn’t even think about declaring bankruptcy until you’ve made a serious effort to pay off your debt. You’d be surprised how fast you can get rid of your debt when you’ve got a plan and a good budget.

And even though bankruptcy can stop the repo man from taking your car, collectors from taking money out of your paycheck, or even the bank from foreclosing on your home, it doesn’t make all your problems go away.

For starters, there are some debts that bankruptcy doesn’t wipe out, including:

• Student loans
• Government debts (taxes, fines or penalties)
• Child support and alimony

Plus, a bankruptcy stays on your credit report for up to 10 years—which can keep you from getting a job, taking out a mortgage, or starting a business. So, even if it seems like bankruptcy will give you a “fresh start,” the cost might be more than you’re willing to pay.

We know that’s a lot to take in. But it’s important to know what you’re really dealing with here. As our friend Dr. John Delony likes to say, “Facts are your friends.” The thing is, bankruptcy is messy. It’s a gut-wrenching experience that lays out your money problems for all to see and drags you through the legal mud. And you should do everything in your power to avoid bankruptcy.

Which Type of Bankruptcy Should You File?

Chapter 7 and Chapter 13 are the most common types of bankruptcies for individuals. And which one you should file mostly depends on what types of debt you have and what you’re willing to give up.

In a Chapter 7 bankruptcy, most of what you own is sold to pay back what you owe to creditors. The only way to guarantee that you get to keep your house, car or other assets is to reaffirm the debt—which means you agree to keep making payments on them. Most, if not all, of your unsecured debt (like medical bills and credit cards) is cleared.

But before you can file for Chapter 7, the court first has to decide if your income is too low to pay back your debt (this is called the means test). And a Chapter 7 bankruptcy usually takes a couple of months from start to finish.

With a Chapter 13 bankruptcy, you get to keep your stuff, but you also get put on a super tight budget and a court-approved plan to pay back some or all of your debt. The whole process takes about three to five years, so don’t count on your debts being erased right away. Plus, your whole life is on display while the court figures out your budget and your pay-back plan.

But with any type of bankruptcy you’re looking at, you can expect:

• Expensive filing and lawyer fees
• A mark on your credit report/public record for up to 10 years
• Trouble qualifying for a mortgage in the future

How to File for Bankruptcy: 11 Steps

If bankruptcy really is your last resort, then it’s time to get prepared for the legal and emotional battle ahead. We’ll walk you through each step of the bankruptcy process, so you have an idea of what to expect.

Get help with your money questions. Talk to a Financial Coach today!

Take a deep breath. You’re going to get through this.

1. Consult a bankruptcy attorney.
2. Gather and organize your documents.
3. Take a credit counseling course.
4. Fill out the bankruptcy forms.
5. Print your bankruptcy forms.
6. Make sure you have your filing fee..
7. File your bankruptcy forms in court.
8. Send documents to your bankruptcy trustee.
9. Go to the meeting of creditors.
10. Complete the debtor education course.
11. Wait for discharge and deal with the rest of your debt.

1. Consult a bankruptcy attorney.

You could choose to file bankruptcy by yourself (it’s called filing pro se). But you’re going to be a lot better off if you have a bankruptcy attorney in your corner.

So, just like you would hire someone to defend you in a trial, you want to hire a lawyer who’s handled their fair share of bankruptcies before. You need someone who can offer expert advice about what to do and help take some of the stress out of the process—especially when it’s time to fill out paperwork.

You can find a bankruptcy lawyer on the American Bar Association’s Legal Help website and through the Legal Services Corporation. If you can’t afford an attorney, you may be able to get free legal help.

2. Gather and organize your documents.

The first thing you need to do is figure out where you stand with your finances. Your money situation is going to be center stage throughout the whole bankruptcy process, so if there were ever a time to be organized, it’s now. Here are some of the documents you’ll need to gather for your case:

List of Your Debts

• Your credit report (Get a copy of your free yearly credit report from each of the major credit bureaus—Experian, TransUnion and Equifax—or on annualcreditreport.com.)
• Medical bills
• Credit card statements
• Records of any personal loans, car loans or tax debts
• Proof that you owe anyone money

List of Your Income

• Tax returns for the past two years
• Pay stubs for the past six months or longer
• Current investment and retirement account statements
• Bank account statements for the past six months or longer
• Proof that anyone owes you money

List of Your Assets

• Real estate documents and mortgage statements
• Vehicle registration and information
• Value of property (List out how much your stuff is worth, especially your car and any real estate you own. You can group other items into categories—clothes, electronics, etc.)
• Property tax exemptions
• Receipts or invoices for any major purchases you made in the last year (appliances, cars, jewelry, etc.)

Other Documents

• Personal identification (like your driver’s license and Social Security card)
• Any documented communication you’ve had with your creditors
• Insurance policies
• Any previous lawsuits you were involved in

A bankruptcy lawyer will be able to tell you more about the exact documents you’ll need for your specific situation. But if it’s got to do with your debts, income or assets, you’ll probably need it. And once you’ve gathered your records and made copies, put them in a special bankruptcy file so you can get to them easily.

3. Take a credit counseling course.

Everyone who files for bankruptcy has to take a credit counseling course that’s approved by the Department of Justice. In this course, you and someone from a credit counseling agency will talk about your finances to decide if bankruptcy is really the right choice.

The credit counseling course usually takes about an hour to complete, and you can do it online or by phone. The cost of the course depends on where you take it, but if you don’t make enough money to pay for the course, you can have the fee lowered or waived entirely.¹ Once you finish the course, make sure you keep your certificate of completion—you’ll need it when you file.

4. Fill out the bankruptcy forms.

Okay, you made it this far. Now it’s time for the paperwork. This is the most mind-numbing step in the process, but it’s important to get everything as exact as possible if you want your case to be approved.

Go ahead and get comfortable, because you’ll have to fill out a bunch of forms (they’re all free to download here). You’ll also need additional forms based on the state you live in and your specific case. These 70-plus pages ask you about your income, how much you spend, what you owe, what you own, and more. This is where all those documents you gathered in Step 1 come in handy.

Now, we’re going to be real with you—there are a lot of details and plenty of math involved in this step. This is when you basically have to prove to a judge that you can’t make ends meet because of your debt.

You’re going to be a lot better off if you have an attorney helping you with this part. But if you’re not able to hire a lawyer, try using a bankruptcy software that will help you figure out what forms you need. Some even let you file electronically.

5. Print your bankruptcy forms.

When you print out your bankruptcy forms, keep in mind that the court is pickier than a college English professor. Here’s an important rule: Your forms need to be single-sided or the court won’t accept them (and that would mean more work for you and a lot of wasted paper).

Most courts only need one copy of the petition (that’s the section of the bankruptcy paperwork that proves you aren’t able to pay back your debts). But some courts want as many as four copies. So, you’ll need to double-check with your local bankruptcy court to nail down the exact number to print out. And of course, you’ll want to save a copy for yourself. After your forms are printed, go ahead and sign them so you’re ready for the next step.

6. Make sure you have your filing fee.

Bankruptcy isn’t cheap. On top of attorney fees, you also have to pay a fee just to file for bankruptcy. The total filing fee for a Chapter 7 bankruptcy is $335, and for a Chapter 13 bankruptcy it’s $310.^2,3 You’ll have to pay this amount in exact change to the court in person.

If you don’t have the money to cover the filing fee, you can ask for a payment plan to space out your fee (up to four payments over 120 days). Or, if money is really tight, you can submit a form asking for the fee to be waived.

7. File your bankruptcy forms in court.

Now it’s time to head to your local courthouse and turn in your bankruptcy forms. Not every experience is the same, but here’s a general play-by-play of what you can expect when you go to file for bankruptcy in person:

After you go through security, head to the clerk’s office (this is the person responsible for handling court records). The only thing you need to tell the clerk is, “I’m here to file for bankruptcy.” This is also when you give them your bankruptcy forms (don’t forget your credit counseling course certificate) and the filing fee in exact change (or the forms for a payment plan or fee waiver, if that’s you).

Then you’ll take a seat while the clerk processes your case. It usually only takes about 15 minutes or so for them to scan and upload your forms into the court’s system. Then the clerk will give you some important info that you need to hang on to:

• Your bankruptcy case number
• The name of your bankruptcy trustee
• The date, time and location of your meeting with your trustee (aka the meeting of creditors)

At this point, your bankruptcy case is officially filed. From now until the end of your case, debt collectors are legally not allowed to contact you to collect debts because of what’s called an automatic stay. Also, creditors can’t take money directly out of your paycheck, and any foreclosures are put on pause.

But filing your bankruptcy forms doesn’t mean you’re in the clear yet. There are some other key steps you have to take before your debts are gone.

8. Send documents to your bankruptcy trustee.

Once you’ve filed, you should get the name of your bankruptcy trustee. A bankruptcy trustee is someone appointed by the court to handle your case. Sometimes they’re lawyers, but not always.

Your trustee will ask you to send them certain documents like tax returns, pay stubs and bank statements. So, pay close attention to your mail and make sure you do everything the trustee tells you if you want your debts erased.

9. Go to the meeting of creditors.

The meeting of creditors (also known as the 341 meeting because it refers to Section 341 of the bankruptcy code) is when you’ll sit down with your bankruptcy trustee to make sure you didn’t leave out any important info in your paperwork—like forgotten debts or assets.

Unfortunately, like the name suggests, your creditors (aka the people you owe money to) are also on the invite list. But it’s not always a sure thing they’ll show up. If they do, it’s usually to find out if you’re giving up an asset (like a car or boat) or if you’re reaffirming the debt in order to keep it (which means you’re also keeping the payments).

The trustee’s job is to make sure everything with your case is correct. And your creditors are there to make sure they get paid as much as possible. Even though this meeting doesn’t take place in a courtroom, you’re still under oath. So be honest and let the trustee know if there are any changes you need to make to your bankruptcy file. The last thing you want to do is seem like you’re hiding something.

Since you have to sell most of your stuff to get your debts erased in a Chapter 7, your creditors are more likely to show up to make sure they get their piece of the pie. Credit card companies may also join the party to ask about your recent purchases. Because most unsecured debt is erased in a Chapter 7, they want to know if you ran up a bill on purpose—just to get it cleared by filing for bankruptcy. (FYI: That’s fraud.)

In a Chapter 13 bankruptcy, the 341 meeting is when your trustee ranks your debts to decide which creditor should get paid first. But if the trustee doesn’t think your creditors will be paid enough based on the payment plan you filed, they could object to the plan—which would mean you’d have to go before a judge.

Your role in the 341 meeting may be small, but this is the time for you to ask any questions you have about your case. This is also your chance to file an objection (or a formal complaint) if you feel a creditor has claimed a debt that’s not true. So, come prepared and don’t be afraid to speak up!

10. Complete the debtor education course.

While you wait for your case to be processed, you’ll also need to complete a second bankruptcy course—the debtor education course.

Bankruptcy isn’t something you want to go through once, let alone multiple times. The goal of the debtor education course is to teach you how to make smarter money choices moving forward. The same fees for the credit counseling course apply, but the debtor education course usually takes at least two hours. Remember, you have to complete this course if you want your debts cleared.

11. Wait for discharge and deal with the rest of your debt.

You’re almost done! But there are still a couple of things that need to happen before your bankruptcy case comes to a close, depending on which type of bankruptcy you filed.

If you filed Chapter 7, your debts will be cleared as soon as your trustee sells your nonexempt assets (these are the ones that were approved to sell when you filed) and pays off your creditors.

If you filed Chapter 13, you’ve got to complete the payment plan and make sure all your creditors get their money before your debts can be erased. If you fall behind on payments or don’t stick to the plan, your case could be dismissed, putting you back at square one.

When your bankruptcy case is closed, you’ll most likely get a letter in the mail telling you your debts have been cleared. If you don’t get a letter, you can always contact the clerk’s office, or check your case online if your trustee gave you that option. When your debts are discharged, you’re no longer legally required to pay back those debts.

But remember, even after your debts are cleared, a bankruptcy stays on your record for up to 10 years. And if you’ve got any secured debt that you reaffirmed (usually a car loan) or any debt that wasn’t bankruptable (like those pesky student loans), you want to be sure to take care of those ASAP.

Alternatives to Filing Bankruptcy

As you can see, bankruptcy isn’t a quick or painless process. And, unfortunately, it could take months or even years before you feel any relief. You may even go through the whole filing process and not even qualify for bankruptcy.

The good news is, there are ways to get debt off your back without filing for bankruptcy.

Get on a Budget

Never underestimate the power of a budget. Making a plan for your money can keep you from overspending and help you pay off your debt faster. And listen, you'll have to get on a budget anyway if you go through bankruptcy—so you might as well tell your money where to go now, instead of someone else telling you later. Go ahead and create your free budget with EveryDollar today!

Cut Back Your Spending

If you’re facing bankruptcy, you need to cut back your spending to just your Four Walls: food, utilities, shelter and transportation. That might seem tough, but trust us, bankruptcy would be tougher. And as long as you’ve got dinner on the table and gas in the tank, you can start to fight your way out of debt.

Get Your Income Up

This is the time to hustle and increase your income as much as possible. Work extra hours if you can or snag a side hustle (or two) to help you boost your income—and boost your debt payoff!

Sell Everything

Whatever you don’t sell now, you could be forced to sell during bankruptcy. So decide if you need to trade your expensive car payment in for a cheaper ride—or even if you need to downsize your home. As for the rest of your stuff: Unless it’s something you absolutely can’t live without, sell it to pay off your debt. Because if you don’t, a bankruptcy trustee probably will.

Connect With a Financial Coach

Listen, dealing with debt is hard—especially if you’re staring down a pretty big number. But you don’t have to navigate it all on your own. Having someone in your corner can make all the difference. So, if you’re considering bankruptcy, connect with a Ramsey Preferred Coach who will answer your questions and walk with you through your specific situation.

And remember: No matter how much debt you have, there is hope! Just take a deep breath and take it one step at a time. Whether you file for bankruptcy or not, you will get through this.