Important Bankruptcy Rules

Whether you are filing for Chapter 7 bankruptcy, Chapter 13, Chapter 11, or something else entirely, you need to make sure that you know all of the rules and regulations that go along with it. Following them is incredibly important, or your request could be denied. Even if it goes through, you have to know what is then required to clear your financial slate and start over.

Chapter 7 vs. Chapter 13

To start with, you must know that there are different rules based on the type of bankruptcy -– or the “chapter” -- that you select. Chapter 7 bankruptcy uses the liquidation process, and you have to sell many of your assets -– though some things are exempt –- to pay off as much debt as possible. Chapter 13 is reorganization bankruptcy, and it means that you get to keep your assets, but you have to set up a payment plan with the lender to take care of the debt over time.

Please note that Chapter 7 and Chapter 13 are not your only options, but they are two of the most common.

No matter what type of bankruptcy you settle on, there are some general rules that you should be aware of from the very beginning. These include the following:

You Cannot Withhold Debt

When applying, write out every last bit of debt that you have, from your business loans to your credit cards. Do not leave anything out of the report. The court has to know about all of your debt, not just portions of it, because bankruptcy is an overall state that impacts your entire financial situation.

You Cannot Withhold Assets

This is something that many people want to do, because they think withholding assets means they will get to keep them. For instance, they may have second cars that they'd hate to lose, but they know that those vehicles are not exempt because only a primary car usually can be. If you find yourself in this position, know that you have to list all vehicles, all real estate, all bank accounts and investments, and all the rest. Never leave any assets off, even those that you know are exempt.

You Must Not Run Up Debt Prior to Filing

Once you decide that you want to file for bankruptcy, you may be tempted to run up your credit card debt on things that cannot be returned -– like food -– because you figure that you'll just be washing that debt away when you file, anyway. However, if done intentionally, this is a crime on the federal level, and should always be avoided.

Stick to the Truth

When you file for bankruptcy, you're going to end up in one of the federal U.S. Bankruptcy Courts. You cannot lie to the judge, or you could be charged with a crime. This is true for verbal testimonies or written testimonies. Always stick to the truth, telling the court exactly what you owe, what you own, and the like. Do not lie for any reason, whether to save face or to protect your assets. Give the court all of the proper personal and business information, tell them about all income –- even that which has not been paid yet –- and answer any questions truthfully. Doing so will make the whole process move quickly and smoothly.

Naturally, there are going to be additional rules based on the type of filing you make, such as how often you have to pay off your debt under a reorganization plan or how fast you need to sell your assets under a liquidation plan. Be sure to look into all of these intricacies and ask any questions that you may have. The rules above, though, are a terrific place to start since they will apply to all cases.

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