The Process After the Bankruptcy Petition is Filed

A bankruptcy discharge serves to erase the debt and give the debtor a fresh start financially. Chapter 7 & 13 are the most common bankruptcy chapters.

Automatic Stay

Filing for bankruptcy under either chapter puts into effect an "Order for Relief" -- known informally as the "automatic stay." The automatic stay immediately stops most creditors from trying to collect what you owe them. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally cannot initiate or continue any lawsuits, garnish wages, or make telephone calls demanding payments. The automatic stay provides a period of time in which all judgments, collection activities, foreclosures, and repossessions of property are suspended and may not be pursued by the creditors on any debt or claim that arose before the filing of the bankruptcy petition.

Chapter 7

After a chapter 7 bankruptcy is filed, an impartial trustee is appointed to administer and liquidate your non-exempt assets. A meeting of the creditors is generally held 20 to 40 days after the petition is filed. The trustee conducts this meeting and will ask questions about your bankruptcy, financial affairs and property. Creditors can also question you about the collateral or the information you gave them to obtain the loan. You must attend this meeting. If you have filed a joint petition with your spouse, both must attend this meeting. Unsecured creditors who have claims against the debtor must file their claims with the clerk of court within 90 days of the first date set for the meeting of creditors. The trustee will liquidate your non-exempt assets and pay your unsecured creditors. A secured debt in Chapter 7 bankruptcy has 2 components: personal liability and the collateral, or the security interest. Chapter 7 eliminates the legal liability for the debt, but still allows the secured creditor to take the property and sell it. However, the creditor will have to accept whatever he can get for the property; he will not be able to get a deficiency judgment.

Chapter 13

Under Chapter 13, debtors are permitted to repay creditors, in full or in part, in installments over a three- to five-year period, during which time creditors are prohibited from starting or continuing collection efforts. A plan providing for payments over more than three years must be for cause (a reason) and must be approved by the court. In no case may a plan provide for payments over a period longer than five years. You must file a plan of repayment with the petition or within 15 days thereafter, unless extended by the court for cause. After the meeting of creditors is concluded, the bankruptcy judge must determine at a confirmation hearing whether the plan is feasible and should be approved. Creditors may object to confirmation of the plan based on various grounds that are set forth in the Bankruptcy Code. In that instance, the bankruptcy court will hear and rule on the objections. The plan must describe in detail how and how much you will repay each of your debts. There is no official form for the plan, but many courts have designed their own forms. The plan must also explain how you plan to contribute that part of your future income necessary to meet the terms of the plan. You must start making payments under the plan within 30 days after you file it in the court.  

Discharge

As a general rule, individual debtors receive a discharge in more than 99 percent of Chapter 7 cases. In most cases, unless a complaint has been filed objecting to the discharge or the debtor has filed a written waiver, the discharge will be granted to a Chapter 7 debtor relatively early in the case, that is, 60 to 90 days after the date set for the meeting of creditors. In Chapter 13, you will receive a discharge after you will get a discharge after you complete the payments as per the plan.

Getting Legal Help

Bankruptcy is a complex process. An experienced bankruptcy attorney can assist you file for bankruptcy and obtain a discharge.