When actress Teri Polo filed for bankruptcy protection on April 14, 2014, it made waves among legal observers and fans of the popular Meet the Parents movie series. According to one published report, Polo became delinquent on tax obligations while experiencing "a costly divorce and during an acting hiatus while raising her children."

The type of income and expense issues associated with Polo’s bankruptcy filing can affect any taxpayer, regardless of income or career background. If you're considering filing for bankruptcy protection, there are eight issues that may be relevant.

1. There's More Than One Kind

Bankruptcy petitions are most commonly filed under Chapter 7, Chapter 11 or Chapter 13 of the U.S. Bankruptcy Code. (There are separate provisions under Chapter 12 of the Code available to family farmers who need to reorganize debt while keeping ownership of their property and business, while Chapter 9 of the Code applies to municipalities.) Teri Polo filed for bankruptcy under Chapter 11.

  • The purpose of a Chapter 7 petition is, in effect, to allow a person to receive a fresh start from debt. After filing for relief, an individual debtor may receive a discharge of certain debts. This permanently prohibits creditors from attempting to collect those debts listed by the debtor on the bankruptcy schedules. Corporations that file under Chapter 7 are not eligible to receive a discharge.
  • The purpose of a petition filed under Chapter 11 is to give the filing individual or business a limited amount of time that's free from creditor collection efforts to restructure their financial obligations. This allows the filing individual or business to continue functioning financially under a bankruptcy court-approved reorganization plan. When a company files a Chapter 11 petition, its creditors vote on a repayment plan, which is then approved by the court. One of the advantages of a Chapter 11 filing is that when a trustee is not appointed, the filing individual or business maintains control of its property while the bankruptcy is pending. In general, Chapter 11 bankruptcy filings are more complex than Chapter 7 filings.
  • The purpose of Chapter 13 filings is to allow individual debtors with regular incomes to pay back debts using this income. Chapter 13, in general, also enables debtors to keep certain assets. Corporations and LLCs may not file petitions under Chapter 13, but sole proprietorships can.

2. It Costs Money

Bankruptcy can be a way for people and companies to free themselves from their debts, but it still comes at a cost. The cost to file varies depending on the type of filing. Bankruptcy petitions filed under Chapter 7 must be accompanied by a $335 filing fee. Filings under Chapter 11 cost $1,717, whereas filings under Chapter 13 cost $310.

3. You Can File Without the Help of a Lawyer

You can file petitions under Chapters 7, 11 or 13 yourself. This is known as proceeding "pro se." However, it should be noted that Chapter 11 filings can be quite complex, and bankruptcy judges are not particularly tolerant of mistakes made by pro se Chapter 11 petitioners.

4. You Can't File Just Anywhere

Your petition will need to be filed in the U.S. Bankruptcy Court for the federal district in which you reside. There are 94 judicial districts. The filing format (paper vs. electronic) for your petition and the accompanying documents vary by federal district; you should check the U.S. courts website for your particular federal district bankruptcy court to assess the formatting requirements.

5. You'll Have to Fess Up

Along with your petition, you will also be required to file a lot of information about your assets, debts, liabilities and income, including:

  • A schedule of assets and liabilities
  • A statement of current income and expenditures
  • All debts to be included in the bankruptcy
  • Executory contracts and unexpired leases
  • A schedule of exempt assets
  • A means test (this is used by the court-appointed trustee to assess the possible abuse of bankruptcy laws)

6. If You File Yourself, You'll Have to Go to Court

This can be daunting for anyone. Fortunately, in Chapter 7 proceedings, the filing petitioner often only has to attend one hearing: a "meeting of creditors." At this hearing, you will be required to answer questions from the court-appointed bankruptcy trustee concerning your financial affairs, and—if they elect to attend—questions from your creditors. Depending on the amount of your assets and debts (and potentially other factors), creditor representatives may or may not show up to the meeting of creditors.

7. It Won't Eliminate All Your Debts

It is important to recognize that not all of your debts can be eliminated or "wiped clean" when you file for bankruptcy. There are some types of debt that cannot be discharged. These include child support obligations, alimony, criminal fines, student loans, taxes and court restitution orders.

If you file under Chapter 7, your assets and property become property of the bankruptcy estate, subject to exceptions. After the bankruptcy trustee is appointed, they receive the authority to sell your assets in order to pay debts owed to your creditors. Assets sold in bankruptcy often sell at a discount.

The exceptions to the general rule that your assets and property become the property of the bankruptcy estate typically depend in part on the law in your individual state. The federal system, along with each state system, has its own sets of exemptions. Both the federal system and virtually all state systems permit exemptions for household goods and clothing unless they're unusually valuable.

In certain states, you are required to apply that state’s exemptions in lieu of federal exemptions, whereas other states allow you to choose between state and federal exemptions. The federal system, along with most states, allows you to retain a certain portion of equity in your home, as well as certain personal property such as an automobile. It’s also wise to investigate—or determine through consultation with an attorney—whether a homestead exemption applies in your state. This would allow you to keep all of the equity in your home as well.

8. There Are Other Requirements to Filing

There are other requirements as part of the bankruptcy process, including the modest requirement that filers attend two mandatory classes. These are a pre-petition class and a post-petition class. The pre-petition class is taken before you make your bankruptcy filing, to ensure that you’ve explored other credit solution options prior to making your filing. The post-petition class is taken immediately prior to your bankruptcy being discharged, with the goal of providing counseling regarding how to better manage money and debt obligations in the future. Each class can be taken online for as little as $25.

The above information should not be relied upon as legal authority. There is no substitute for reference to Title 11 of the U.S. Bankruptcy Code, as well as the Federal Rules of Bankruptcy Procedure.