Bankruptcy is a tool used to relieve debt. It is based on federal law and is available to many different types of debtors like individuals, farms, and businesses.
Here’s how bankruptcy works: Something called a “petition” is filed with a federal bankruptcy court. This petition contains a breakdown of the things you own and all the debts that you owe. The petition is reviewed by a Trustee that looks to see if you have any value in an asset above what you owe on it.
Here’s how bankruptcy helps you: Once your petition is filed, almost all creditors must stop contacting you to try and collect debt. Nearly all law suits and all wage garnishments against you must be thrown out or put on hold. If you are facing a foreclosure or repossession, you can get time to catch up on payments or get your vehicle back.
Bankruptcy is a process with a beginning, middle, and end. It begins by reviewing your financial situation and ends when your debts are gone or you have caught back up with your payments. In the middle of the bankruptcy process, many creditors are not allowed to try to make a collection either by calling or sending letters.
When you enter the bankruptcy process, you look at what you own and what you owe to creditors. By looking at these, your attorneys can see what form of bankruptcy would allow you to keep the things you want and eliminate unwanted debts. The two most common forms of bankruptcy are liquidation (Chapter 7) and reorganization (Chapter 13).
Chapter 7 Bankruptcy
A Chapter 7 or “liquidation” bankruptcy is the most simple form of bankruptcy. It will get rid of almost all of your unsecured debts like credit cards and medical debt. A Chapter 7 bankruptcy does not take much time to complete — depending on your situation and how quickly you are able to gather your information, you could be filed within a week of your appointment.
Sometimes, there are circumstances that will push back a Chapter 7 filing to a later date. The filing is typically delayed if the client has recently made a large repayment of money to a family member or friend. These repayments, if made within a year before filing, could allow the Trustee handling the case to track down and go after this money. Another common reason to wait to file is that something like a television or large appliance has been purchased with a credit card.
Filing a Chapter 7 will not discharge, or eliminate, all debts, as there are certain exceptions: things like some taxes, student loans, criminal fines, and child or spousal support obligations will not be addressed in a Chapter 7. There are, however, ways in a Chapter 13 that these types of debts can be handled and a repayment plan set up to deal with them.
Chapter 13 Bankruptcy
This type of bankruptcy is known as a “reorganization” because it involves a repayment plan. A Chapter 13 offers many of the same protections as a Chapter 7. Most creditors still are not allowed to try to make a collection from you. Another similarity is that a Chapter 13 can also wipe out a large amount of credit card and medical debt. The major differences from a Chapter 7 are timing and purpose.
Repayment plans will last between three and five years. Monthly payments are made to the Trustee. Your payment is determined by the amount of money you have left over each month after paying your expenses. The Trustee takes this money and pays the creditors that you and your attorney have included in the repayment plan. Often times, the creditors in this repayment plan will only receive a small portion of the total amount of the debt they are owed. The length of the plan depends on the amount and type of debt you have, but also considers how much you may be earning during the plan. Once you make all your payments, your debts are cleared.
If the Chapter 13 takes longer to get my debts cleared, why would I choose it? Individuals that want to save their home from foreclosure may get the opportunity through their repayment plan. Once the plan has been started, the mortgage companies are not allowed to penalize you for missed mortgage payments. In fact, the repayment plan allows you to pay back any missed payments during the life of the plan. Basically, the plan protects you from being foreclosed on while allowing you to catch up with your mortgage payments. A vehicle loan works in much the same way. If you are in danger of having your vehicle repossessed, the Chapter 13 will prevent that and allow you to keep your car while and provide you with time to repay the balance you owe.
Some individuals have enough income to meet their monthly expenses with a little money to spare, but there is little chance that their payments will ever make a dent in the total amount they owe. There is a chance that this remaining income will too high to allow for a Chapter 7 filing. In these circumstances, the Chapter13 plan basically acts as a low interest repayment plan allowing for a larger amount of payments to be applied to the principal as opposed to interest.
During your plan, if you lose your job or your expenses suddenly increase, you have the option of adjusting your monthly payment amount. If there is an even more drastic change in your circumstances, you can convert your petition to a Chapter 7. By switching, you get all the advantages of a Chapter 7 as if you had filed it from the start.
The bankruptcy process ends with a Chapter 13 when all the monthly payments have been made and the Court orders that certain types of debt are wiped away.
Regardless of which chapter you file under, the middle of the bankruptcy process includes a brief meeting with your Trustee. This meeting takes place a few weeks after you filed your bankruptcy.
This meeting is commonly called a 341 Hearing. This is not like a court hearing or trial. It is more like an informal review of your petition with the Trustee. The Trustee may have a few questions to clear up any loose ends or add more detail to what had been in the petition. This meeting usually lasts between three to fifteen minutes and is a low pressure situation. Click here for more information on 341 hearings.
At the conclusion of the meeting, those who filed Chapter 7 are basically done once they complete an online financial management course. If a Chapter 13 had been filed, the details of the plan still need to be approved by the Judge. Many times, if the Trustee is satisfied by the terms of the plan, they will offer a recommendation to the Judge that it should be approved. As long as the basic requirements of the Chapter 13 have been met, the Judge is very likely to approve the plan.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 Requires the following notice:
We are a Debt Relief Agency. We help people file for bankruptcy relief under the Bankruptcy Code. This web site is not an offer to provide bankruptcy assistance services to any assisted person as defined under Section 527(a)(2) of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.