Some auto lenders will allow you to pay off the outstanding loan and keep the car. Nice, but I don't imagine you have a lot of ready cash lying around the house right now.

Then there's the other option - reaffirming the debt which means - yes - I'm going to go through the bankruptcy process but I promise to fully repay this particular debt and won't include this amount in my bankruptcy debt listings.

Most bankruptcy attorneys worth their salt will tell you to avoid reaffirmations when ever possible and that's good advice. But if you need your wheels to get to work to make the money to pay off your debts - what other options will you have?
 

The Chapter 7 Bankruptcy Process

When you file the papers initiating a Chapter 7 bankruptcy, all of your assets are assembled on paper and put into a legal entity called your "bankruptcy estate". It's rather like what happens when you die. All your debts are collected and lumped together. Then your debtors are paid off and what's left is your estate.

But in this case your assets are being collected so the court can divide them up according to the new bankruptcy law. Some of your assets you'll be able to keep under the exemption provision (which vary widely from state to state).  A homestead exemption may help you save your home or farm. But given the value of real estate today it's often a struggle.

In New York State the homestead exemption is a paltry 50 grand. What kind of house can buy for that? Any equity you have over and above that limit may or may not be protected by other exemptions.

Be patient, there's a long list of required documents but as you'll see they all make sense and give the bankruptcy court what they need to be sure you qualify for a chapter 7 bankruptcy and the information the court will need to execute the entire process.

If you have any questions about the forms you can ask either your lawyer or the clerk of courts.

The Voluntary Petition

This form covers basic information about your bankruptcy case including your name, address and the last four digits of your social security number. (You'll be required to furnish your full social security number on a different form.)

The voluntary petition will also state clearly that you are in fact seeking a chapter 7 bankruptcy.

Exhibit D

The exhibit D confirms that you have in fact completed the required training courses required under the new bankruptcy law.

And now the dreaded schedules.

Schedule A

You must list all your real property including your home, any other land you have a full or part ownership in, a co-op or a condominium. The schedule requires that you provide a fair market value of each and list the exact amount of any outstanding loans, mortgages or liens.

Schedule B

Here you will list any cash, bank accounts, furniture and clothing. This schedule also asks that you list any intangible assets such as a pending legal settlement or if you have any intention of suing anyone anytime soon as the award from that settlement will need to be considered in your asset picture.

The total of schedule A and B gives the court a complete picture of everything you have or are about to acquire.

Schedule C

Here is where you take advantage of any and all exemptions the law allows. Some states are far, far more generous than others. This has lead to something the government calls "forum shopping" which is where an individual who lives in a debtor unfriendly state where there are few if any exemptions can move to another much friendly state (such as Texas or Florida), wait until they satisfy the legal residency requirement and then proceed with their bankruptcy filing there.

Keep in mind that in many areas the homestead exemption is doubled when a married couple files bankruptcy jointly.

Schedule D

Now you list your debts - all of them. In bankruptcy language debts are called "claims" so don't get confused by the language on the forms.

On schedule D you list any secured claims - those are debts where the creditor took some asset as collateral for your loan and has the right under the contract you signed to repossess it. Cars and houses are the usual items listed here.

Schedules E and F

Here you list unsecured debts which are all debts that are not secured by your property. Ask your lawyer as some of these debts will be classified as "priority claims" while others fall into a broader category known as "general unsecured claims". Credit card debts are usually considered general unsecured claims.

Schedule G

Here you list contracts or leases that are ongoing. An apartment lease or the lease on a car would be listed here.

Schedule H

If you have any co-debtors they must be listed here. If anyone other than yourself is liable on any one or more of your debts they must be listed here. This includes anyone who co-signed on a car loan or mortgage.

Schedule I

Here you list your income - all of it from any source.

Schedule J

Here you reveal all of your monthly living expenses. Don't forget anything.
 

The Statement of Financial Affairs

One more form - the Statement of Financial Affairs. Any other information that may play a role in your case gets listed here. That includes any relevant facts that aren't revealed in detail on the previous schedules. Do you have any informal financial arrangements with friends or family? Are you driving a borrowed car or are you expecting some income from an aunt who is near death in some other state?

You'll also need to list all of your employers looking back three full years. If you need to get together the list - get started now before you have to fill out the forms.

Other Proofs You'll Need to Provide

Failure to provide any of the following documents could very easily result in your bankruptcy being dismissed.

- You'll have to provide evidence that you haven't any prior bankruptcy filings for the past 8 years.

- You'll have to provide completion documents for the two mandatory courses you'll have to take before you can file.

- Proof of support and incomes covering the pervious six months (include any income of a spouse if filing jointly). You'll need pay stubs, unemployment income, pension income and child or spousal support documentation.

- Tax returns for the 2 previous years. If you didn't file you've got a problem.

- Any and all bank statements for the previous 6 months.

- Copies of all creditor notices, including all credit card statements and bill collection letters for the previous 3 months.

What Happens After I File?

In most cases anything you receive you can keep but there are exceptions under the new bankruptcy law.

If you receive an inheritance from a rich uncle or receive a property settlement or receive life insurance benefits within 6 months of your filing, those funds will probably have to be given to your bankruptcy trustee for distribution to your creditors.

Any award you might receive from a malpractice law suit or personal injury claim that exceeds $7.500 would likewise have to be surrendered. (If such a surrender covers more than your outstanding debts, any excess will be returned to you.)

With a chapter 7 bankruptcy, when the bankruptcy court judge pounds his gavel - it's all over. Your debts are wiped away and you're debt free. Any money you earn after that you keep.

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