ABOUT BANKRUPTCY PROCEEDINGS
Bankruptcy law is very complicated; it is so complicated, in fact, that many multi-volume encyclopedias have been written about it. With the space available on this or on any website, it is possible to provide you only with a broad, general, and fairly vague description of it. This description is useful only to provide you with a very basic background to help you when you confer with an attorney.
The first step in filing for bankruptcy relief is to meet with an attorney who can help you. During this initial interview, you will go over your financial circumstances, go over your bankruptcy and non-bankruptcy options, and make a preliminary determination how best to proceed. Your best option is usually determined by what kind of debts you have, what assets you have and how effectively you can protect them with your exemptions, and what your income and expenses are. Usually, individuals will choose to file under either chapter 7 or chapter 13 of the Bankruptcy Code. The different kinds of debts, your exemptions, and the different Bankruptcy Code chapters available to you are described briefly below. Your attorney will probably give you a questionnaire, document list, and some other material to help him prepare the petition, schedules, and other documents the Bankruptcy Code requires; and to help you understand the process a little better.
After your initial conference with your attorney, you will take some time to read through the material he gave you, complete the questionnaire he gave you, and gather the documents he needs to help you. Also, you will go online to take a credit counseling course. Everyone must take a credit counseling course before filing a bankruptcy petition. The Unites States Trustee approves agencies that may provide this service, and, usually, these agencies provide this course online. Once you complete the course, the credit counseling agency will send you a certificate to print out confirming you did so. You must give this certificate to your attorney who must file it along with your petition.
Once you completed the questionnaire, gathered your documents, and taken the credit counseling course, you will drop everything off at your attorney’s office, and he will prepare your paperwork. Once this is done, you will meet again with your attorney to go over this paperwork to ensure everything is correct and complete. If everything is in order, you will sign your paperwork, and your attorney will file it for you.
WHAT TO EXPECT AFTER FILING
When you file your bankruptcy petition, three important things happen automatically. First, filing a bankruptcy petition automatically triggers a federal injunction, called the automatic stay, that forbids creditors from doing anything to collect a debt. They can’t call you on the phone or repossess your property or continue with a lawsuit. If an individual filed a previous bankruptcy within the last year, however, the automatic stay may not become effective, or, if it does, it may be limited. Second, when a bankruptcy petition is filed, a trustee is appointed automatically to marshal the case through the system. A chapter 7 trustee’s job is to find assets and sell them. A chapter 13 trustee’s job is to collect chapter 13 plan payments and distribute them to creditors. All trustees will police the bankruptcy system to ensure its integrity. And, third, within 20 to 40 days after filing a bankruptcy petition, you and your attorney will meet with the trustee and any creditor that chooses to attend at something called a Meeting of Creditors. The trustee will question you under oath and review the petition and other documents filed with it to ensure everything is in order.
If all goes well, chapter 7 debtors will receive their discharge in the mail shortly after the Meeting of Creditors. Unsecured debts, such as credit cards, are usually discharged. The Bankruptcy Code makes special provisions for certain debts, like family support obligations, taxes, and student loans; usually, these kinds of debts are not discharged in bankruptcy.
In a chapter 13 case, shortly after the Meeting of Creditors, chapter 13 debtors may be asked to appear in court so they and their attorney can answer questions concerning their chapter 13 plan. This is called the Confirmation Hearing. If the Confirmation Hearing goes well, the court will confirm the plan and the formal proceedings are over. You will begin making your chapter 13 plan payments by payroll deduction and will have certain annual reporting obligations during the life of your chapter 13 plan.
To read more about consumer bankruptcies, please see the online publication by the U.S. Courts called Bankruptcy Basics. Bankruptcy Basics may be found at: Click here
To thank you for meeting with me, I will give you a copy of Surviving Debt. Surviving Debt is a manual published by the Consumer Law Center that discusses how to handle debt, how to handle your creditors, and briefly describes your options under the Bankruptcy Code.
Different Kinds of Debt.
There are many kinds of consumer debt and they can be treated differently in bankruptcy. Unsecured debts, such as credit cards, are common and usually discharged. Secured debts, such as home mortgages and auto loans, are also common and usually dischargeable. But the secured creditor may take its collateral unless chapter 7 debtors negotiate an agreement or chapter 13 debtors make special provisions in their chapter 13 plan. Unexpired leases are affected by a bankruptcy and, so, must be considered before filing. Exectory contracts are usually connected to an ongoing relationship with someone that supplies you with a service or a product and you pay them as you go. Examples of these kinds of contracts may be union contracts, insurance contracts, and maintenance contracts. These contracts also are affected by a bankruptcy and must be considered before filing. Other debts, such as family support obligations, taxes, and student loans, are given special consideration in a bankruptcy proceeding.
Exemptions protect assets. The Bankruptcy Code’s new beginning would be of little value if the proceeding left its debtors destitute. So, it permits them to take property away with them, or exempt it, to help them start over. How these exemptions are applied is complicated, and you should have competent, professional help to use them properly. People may plan their bankruptcy by moving their property around to take full advantage of their exemptions, but only to a point. Beyond this point, the bankruptcy court may find that the debtors abused the process and will find them ineligible for a discharge.
BANKRUPTCY CODE CHAPTERS
In a chapter 7 case, individuals go in to bankruptcy court and tell the court who their creditors are and how much they owe them. They tell the court what their income is, and what their living expenses are. Finally, they would tell the court what their assets are, what equity they have in their assets, and what exemptions they are claiming. If the individuals have equity in assets that isn’t protected by their exemptions, the chapter trustee may sell those assets and distribute the proceeds to creditors. Secured debts, such as home mortgages and auto loans, are usually dischargeable, but the secured creditors may take their collateral unless the debtors agree to remain liable on the debt and the court approves it. A chapter 7 bankruptcy usually terminates unexpired leases and executory contracts.
A chapter 13 bankruptcy acts like a consolidation loan, and it begins very much like a chapter 7. But, instead of any assets being sold, individuals give the court a budget plan saying that they will give the chapter 13 trustee so much money each month, for three to five years for three to five years, to pay to creditors. At the end of that three to five years, the debtors will receive a discharge even though there may be balances remaining on their debts. The amount of the monthly payment depends on what the individuals’ disposable income and how much equity they have in their assets period . It also is much easier to address secured debts, executory contracts, unexpired leases, and taxes within a chapter 13 plan than it is within a chapter 7 proceeding. But chapter 13 is limited to consumer debtors with regular income and who have no more than $360,475 in unsecured debts and no more than $1,081,400 in secured debts. Usually, chapter 13 plan payments are made by payroll deduction.
A chapter 11 bankruptcy is a very elaborate proceeding designed to reorganize a business or to provide relief for individuals who cannot qualify for chapter 13. Unlike chapter 13, in chapter 11, creditors must vote to accept the reorganization plan before the court may approve it.
Chapter 12 of the Bankruptcy Code is designed to help family farmers and fishermen. It works something like a cross between a chapter 13 and a chapter 11.
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