The Bankruptcy Process: How it Works
Bankruptcy is designed to work in different ways based on the chapter 7: either a quick discharge of unsecured debts through Chapter 7, or a structured repayment of debt over time through Chapter 13.
The specifics of a case also depends on state laws, the types of debt included and other factors. Get the facts about what your path to debt-relief by speaking with a local bankruptcy attorney. Arrange a free consultation by filling out the quick review form below now.
Chapter 7 & Chapter 13 Bankruptcy: Pre-Filing Briefing
Once you've met with a bankruptcy lawyer and decided which chapter to file under, you'll have to complete a credit counseling briefing before your bankruptcy lawyer can file your case with the court.
The briefing, which has been a requirement since BAPCPA took effect in 2005, basically serves to make sure that bankruptcy is the only viable solution to your financial struggles.
Bankruptcy alternatives such as debt negotiation, debt settlement and in-depth credit counseling may offer the relief some people need. Early post-BAPCPA figures from credit counseling agencies, though, showed that only about 4% of those who receive counseling have feasible options besides bankruptcy.
The Automatic Stay
Once your bankruptcy lawyer has filed your case, the automatic stay will probably take effect right away. This will likely go into effect whether you file under Chapter 7 or Chapter 13 bankruptcy.
The automatic stay is a legal injunction that prohibits creditors from taking any collection action against you. That can translate to no more telephone calls, mail or unexpected visits from people trying to get payments from you.
The automatic stay was also designed to stop foreclosure, repossession, wage garnishment and utility shutoffs.
After this protection takes hold, you can expect significant differences, depending on whether you proceed with Chapter 7 or Chapter 13 bankruptcy.
How Chapter 7 Bankruptcy Works
Chapter 7 bankruptcy cases tend to move quickly, and you can expect to receive your discharge within six months of your initial filing. During these months, a bankruptcy trustee employed by the Justice Department will be assigned to oversee your case.
Your trustee will arrange a meeting of creditors, at which you're required to testify that all the information included in your bankruptcy petition and schedules is complete and accurate as far as you know.
Your trustee will also be responsible for determining whether you have any non-exempt assets (property that the state considers non-essential to your life).
If you do have non-exempt assets, your trustee has the option liquidate them (sell them). The money raised will be put toward paying back your debts to creditors. But don't panic--most Chapter 7 filers don't have any of their property sold.
If you have non-exempt assets you'd like to hold on to, you'll have a chance to reaffirm your debt (agree to keep making payments) or redeem the property (pay its fair market value in a lump sum).
The court will then determine which of your debts will be discharged. In order to be eligible for this discharge, you must complete a financial management course (also known as “debtor education”). This course will help you develop skills like managing money, budgeting and otherwise taking advantage of bankruptcy's fresh start.
How Chapter 13 Bankruptcy Works
Chapter 13 cases run longer than Chapter 7 cases because they involve repayment plans that can last three to five years.
Those who file under Chapter 13 will also have a federally appointed trustee assigned to their case. The trustee's role in Chapter 13 is to distribute your monthly payments among your creditors.
- Within 15 days of filing your petition, your bankruptcy lawyer will also have to file the specifics of your repayment plan.
- You then have 30 days to make the first payment according to that plan – if you fail to do so, the court may dismiss your case.
- At the meeting of the creditors (within six weeks of your initial filing), you'll have to swear to the completeness and correctness of the information included in your bankruptcy petition. Your creditors will have an opportunity to object to the repayment plan and the court may make modifications.
Assuming you adhere to the terms of your repayment plan, you'll be eligible for your discharge once you've made the final payment – but only after you complete your financial management (debtor education) course.
If you kept up with your payments throughout the bankruptcy process, the court may excuse you from any unpaid, unsecured debts still unaccounted for.
Learn More from a Bankruptcy Lawyer
Again, these summaries are general – if you're interested in specific details about what you can expect during your bankruptcy case, you can speak with a bankruptcy attorney practicing in your area.
We at Bankruptcy Central can help you get that process started by connecting you with a local sponsoring bankruptcy lawyer – just fill out our free case evaluation form or call us at 866-288-7281.
The above summary is not legal advice. Laws may have changed since our last update. For the latest information on bankruptcy laws, speak to a local bankruptcy lawyer in your state.