Q:

How do you declare yourself bankrupt?

A:

Quick Answer

A person, business or creditor files a petition with a federal court to declare bankruptcy, according to the Administrative Office of the U.S. Courts. Most individual filings occur through federal Chapters 7 or 13, while most businesses file under Chapters 7 or 11.

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Full Answer

The federal court system handles all bankruptcy petitions, states the Administrative Office of the Courts in Washington state. The office's website refers viewers to the two federal bankruptcy courts in Washington.

Bankruptcy is declared when a court accepts that one's financial liabilities exceed available, according to the Administrative Office of the U.S. Courts. In a Chapter 7 case, a judge orders the sale of all assets and the distribution of proceeds to creditors.

Chapter 13 requests are available only to wage earners, self-employed people and sole proprietorships, according to the Internal Revenue Service. Chapter 13 enables debtors to restructure liabilities by means such as reducing outstanding balances or regular payments during the period of bankruptcy protection, states the Administrative Office of the U.S. Courts. Protection periods are for three to five years.

While Chapter 7 requires that liquidation of all assets to pay off debts, Chapter 13 allows debtors to retain their homes by halting foreclosure proceedings and allowing for the elimination of past due mortgage payments, according to the Administrative Office of the U.S. Courts. The Internal Revenue Service notes that the petitioner must satisfy current tax liabilities during the protection period. The IRS suggests an increase in withholding if overdue taxes are among the reasons for seeking bankruptcy.

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