What is bankruptcy?

Bankruptcy is the process through which a debtor (someone that owes money) is allowed to either discharge or restructure their debt. The process is specifically illustrated in the United States Constitution in Chapter 11 of the United States Code. 

There are different chapters within the Bankruptcy Code which provide relief to debtors seeking help with their creditors. The most common chapters of bankruptcy for consumers and small businesses are Chapter 7 (often referred to as liquidation bankruptcy), Chapter 13 (reorganization), and Chapter 11 (restructuring for businesses). There are other chapters which are available such as Chapter 9 (for municipal governments) and Chapter 12 (family farmers and fisherman) that are far less common than Chapter 7, 11, and 13. 

What happens immediately when I file?

Regardless of what chapter bankruptcy you file, an automatic stay goes into affect. The automatic stay is very useful when trying to stop a creditor's actions. If the mortgage company accelerates your loan and lists your property for foreclosure, filing a bankruptcy proceeding will trigger the automatic stay and halt (or stay) the foreclosure of the property. In some instances, if you have filed a prior bankruptcy within the 12 months prior to filing, the automatic stay may not go into affect immediately which requires a motion that asks the court to impose the stay. The mortgage company will have a chance to file a motion for relief from the automatic stay which would extinguish the automatic stay so that they can proceed with the foreclosure. The mortgage creditor would need to have a valid reason for their motion to be granted.

The automatic stay is also helpful in stopping lawsuits, vehicle repossessions, garnishments, bank levies, and tax levies. The principal concept is the same, the automatic stay stops creditor actions so that the debtor may obtain relief in the bankruptcy court. It most certainly would be difficult or impossible to obtain relief when you have creditors harassing you and taking your property. 

What happens in the days and weeks after filing?

Whether you file Chapter 7 or Chapter 13, you will attend a meeting of creditors typically within 30 to 45 days of the filing of your bankruptcy petition. Your bankruptcy lawyer will prepare you for the items to bring. Some trustees request different documents but generally you will be required to bring: 

• Original proof of your Social Security Number. Documents that prove this are:
  • Your original Social Security Card
  • A W-2 from an employer
  • Military ID card
  • Letter from the Social Security Administration 
  • Letter from the Internal Revenue Service
• Bank statements showing the amount in your bank account on the date of the bankruptcy filing
• Proof of identification such as your driver's license or other government identification card
• Recent pay stubs
• Proof of insurance on secured debts such as your homeowner's insurance or car insurance

Your meeting of creditors in a Chapter 7 will take place with a Chapter 7 Trustee. The Chapter 7 trustee is searching for assets that may be unprotected and available for liquidation. Your bankruptcy attorney will advise you of the proper bankruptcy exemptions to use for your personal assets and you should have an idea prior to the meeting of creditors of any unexempt or unprotected assets. The Trustee or your bankruptcy counsel will ask you questions about the petition and schedules that were filed in your case. 

A meeting of creditors in a Chapter 13 is conducted by either the Chapter 13 Trustee, the trustee's representative or the Chapter 13 Trustee's staff attorney. The Trustee will verify that you listed everything that you own, everyone that you owe, and discuss your Chapter 13 Plan. 

The meeting of creditors also provides your creditors the chance to ask you questions about your finances and their accounts that they have with you. Do not worry though, your bankruptcy attorney is their to serve your interests and insure that the creditor's attorney or their representative stays on point with their questioning related solely to your financial situation. 

Meeting of creditors concluded, what next? 

If you're in a Chapter 7 and the Chapter 7 trustee says that the meeting is concluded, the Trustee will then file a certification to the Court that there are no assets to administer or that there are assets to administer. If there are assets to administer, the Trustee will begin the process of liquidating the property to pay your creditors. The creditors will then be given a chance to file claims with the Bankruptcy Court. If there are no assets to administer, you will wait until the notice period has passed for creditors to object to discharge and if there are none, a discharge order will be entered. Typically, a no asset Chapter 7 lasts only 4 to 6 months from the date of your bankruptcy filing.

If you're in a Chapter 13 repayment plan, after the meeting of creditors is concluded, the Chapter 13 Trustee will prepare their objections to confirmation. These are items that the Trustee believes need to be fixed or produced prior to the Chapter 13 Confirmation Hearing. Creditors may also objection to their treatment or participation in your Chapter 13 Plan. Once all objections to your Plan have been resolved, the court will enter an order confirming your plan treatment of all of your creditors. 

In a Chapter 13, you will need to provide the Trustee with your tax return each year and may have to provide your refund to the Trustee depending on your district's practices. You will also provide your bankruptcy attorney with any changes in income or expenses so that they can properly make any changes that need to be made. 

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