“a new opportunity in life, unhampered by the pressure and discouragement of pre-existing debt.”  - U.S. Supreme Court

BANKRUPTCY OVERVIEW 

The purpose of any bankruptcy is really to provide a fresh start for the Debtor.  The “fresh start” concept encompasses the goal of allowing individuals previously bogged down in debt to engage in newly productive lives unimpaired by their past financial misfortunes.  This is a brief synopsis of bankruptcy and the two most common categories of filing:  Chapter 7 Bankruptcy and Chapter 13 Bankruptcy.

CHAPTER 7

            Chapter 7 bankruptcy filing is by far the most common form of filing of all consumer bankruptcy filings  A chapter 7 bankruptcy case begins with the filing of a petition for relief pursuant to the United States Bankruptcy Code in the district where the individual lives.  The Debtor, in addition to the bankruptcy petition, must also file schedules listing all assets and liabilities, an income and expense report, and a statement of financial affairs.  

Upon commencement of a bankruptcy case,  the Debtor enters into the “automatic stay” provision of the Bankruptcy Code which prohibits creditors from collecting money, initiating lawsuits, or repossessing personal property. This stay arises by operation of law and requires no judicial action.

About 30 days after a petition is filed, a “meeting of creditors” is held.  The Meeting of Creditors, also known as the Section 341 meeting, is a mandatory meeting for the Debtor to attend.  The meeting is generally held in the county where the Debtor resides and is conducted by a bankruptcy trustee rather than a judge.  The meeting is usually brief and consists of questions regarding the Debtor’s assets, liabilities, and any other information the trustee may feel is necessary to determine the reasonableness of the Debtor’s filing.

Following the Meeting of Creditors and barring any other issues, the Bankruptcy Court will typically issue a discharge, in most cases, approximately 90 days later.  A copy of the discharge is then mailed to the Debtor and all the creditors listed in the Debtor’s schedules.

CHAPTER 13

            Chapter 13 is much more complicated than a Chapter 7, however, the basic steps are the same.  The Debtor still has to file a petition for relief with the court along with the corresponding schedules.  The Debtor must also attend the meeting of creditors similar to a chapter 7 filing.  One important step that differentiates the two filings is the requirement of filing a court-approved repayment plan.

In order to enter a Chapter 13 bankruptcy, the Debtor must propose a plan to the Court which states how he/she is going to reorganize his/her finances. If the Court believes the Debtor can make the plan work, and has proposed the plan in good faith, the plan will then be confirmed and the bankruptcy process will almost be complete.  It is important to remember that with a Chapter 13 filing, the Debtor must have sufficient income in order for the repayment plan to be approved by the Court.  Unlike a Chapter 7 bankruptcy, which potentially requires a person to give up property and assets to discharge debt, a Chapter 13 bankruptcy allows a Debtor to keep property and assets while repaying their debts through the Chapter 13 Plan.

In a typical Chapter 13 proceeding, a person with regular income would present the bankruptcy court with a written plan under which the time for payment of his debts would be extended between 3 and 5 years depending on the debtor’s income.  In many cases, the Debtor pays only a fraction of the total debt provided the Debtor’s disposable income is insufficient to pay off all of the debt.

If the debtor successfully completes the payment schedule in this plan, he or she will be discharged from their dischargeable debts.   

POST BANKRUPTCY/ REESTABLISHING YOUR CREDIT

Here are some tips on how to reestablish your credit:

• Apply for a secured credit card where you deposit cash and charge against it.  Use it for purchases that you NEED to make, i.e. groceries, gas, utilities.  Make sure these are paid every month on time.
• Make sure you check your credit report often to see if there are any discrepancies that have not been resolved.  Actively engage creditors who have failed to zero out your outstanding balance.
• Open a checking or savings account.  Lenders are hesitant to loan money to those that have not proven they can properly handle their resources.
• Pay your utility bills and rent on time.
• Find a friend or relative to co-sign for you on a loan and pay it on time.
• Look for car dealers and mortgage brokers that cater to people with imperfect credit, but be careful of predatory lenders looking to take advantage.
• Pay your reaffirmed, pre-bankruptcy debts on time.
• Live within your means.  Do not buy any items that cannot be paid off within two months.

FREQUENTLY ASKED QUESTIONS

Do I get to choose between Chapter 7 and Chapter 13 bankruptcy?

No.  A Debtor is placed under either Chapter 7 or Chapter 13 based on their financial situation.  Chapter 7 bankruptcy is available to a majority of Debtors.  The bankruptcy, however, can be a complicated process which will require the attorney to carefully review each situation to determine the feasibility of filing under either chapter.

Will filing for bankruptcy stop harassing phone calls from bill collectors?

Yes.  Once the petition for relief in a Chapter 7 or Chapter 13 bankruptcy is filed, the Debtor enters into the “automatic stay” provision of the Bankruptcy Code which prohibits creditors from collecting money, initiating lawsuits, or repossessing personal property. This stay arises by operation of law with very few if any exceptions.

What is the Meeting of Creditors?

             The Meeting of Creditors, also known as the Section 341 meeting, is a mandatory meeting for the Debtor to attend.  The meeting is generally held in a county nearby to where the Debtor resides and is conducted by a bankruptcy trustee rather than a judge.  The meeting is usually brief and consists of questions regarding the Debtor’s assets, liabilities, and any other information the trustee may feel is necessary to determine the reasonableness of the Debtor’s filing.

Will I lose my home, car, and other personal property?

             Those who file for bankruptcy usually keep most, if not all, of their assets.

How long is bankruptcy on my credit report?

              Bankruptcy remains on your credit report for up to ten years.  Most people, however, are able to rebuild their credit within a few years.  If you are currently thinking about bankruptcy, then it is likely that your current credit rating has already been tarnished.  A discharge of your current debt may provide the opportunity to rebuild your credit with steady, regular payments on a new account.

What debts are not dischargeable?

The following debts are non-dischargeable in both a Chapter 7 filing and a Chapter 13 filing

• Child support
• Alimony
• Student loans (generally)
• Tax debts (generally)
• Debts for personal injury or death caused by your intoxicated driving
• Fines and penalties imposed for violating the law