The reality of life is that it is unpredictable. Even in business, you can face uncertainties that can affect your financial situation regardless of how stable you think you are. Did you know that according to statistics released by the Administrative Office of the U.S. Courts, annual bankruptcy filings totaled 433,658 in the year ending September 2023, compared with 383,810 cases in 2022?
But what really exactly happens when you file for bankruptcy? The procedure can seem distressing and devastating, but having the knowledge about bankruptcy law can help you through this challenging time.
Granbury bankruptcy lawyer Lindsay D. Steele advises people to speak to a qualified lawyer so that they can get the guidance that they need in order to have a fresh start on their finances through bankruptcy filing.
In this article, we will explain the types of bankruptcy and the process of filing them.
Types of Bankruptcy
There are two main types of bankruptcy that you should be familiar with: Chapter 7 and Chapter 13.
- Chapter 7 bankruptcy, known as liquidation bankruptcy, is designed for individuals who have limited income and are unable to repay their debts. In this type of bankruptcy, your non-exempt assets may be sold to pay off your creditors. But, certain assets such as your primary residence, vehicle, and personal belongings may be exempt from liquidation.
- Chapter 13 bankruptcy, also known as reorganization bankruptcy, allows individuals with a regular income to create a repayment plan to pay off their debts over a period of three to five years. This type of bankruptcy is suitable for those who want to keep their assets and make regular payments to their creditors.
Both types of bankruptcy have their own eligibility requirements and consequences. Consulting with a bankruptcy attorney can determine which type of bankruptcy is right for your specific financial situation.
Filing Process and Documentation
After identifying the suitable bankruptcy type for your financial situation, understanding the filing procedure and gathering required documents is the next step to follow. Filing for bankruptcy involves submitting a petition to the bankruptcy court. Depending on the type of bankruptcy you have chosen, you may need to fill out additional forms and provide supporting documents.
You need to complete the required bankruptcy forms. These forms include a petition, schedules, and a statement of financial affairs. The petition provides basic information about yourself, such as your name, address, and social security number. The schedules detail your assets, income, expenses, and any debts you owe.
Adding to that, supporting documentation is required too. This may include bank statements, pay stubs, tax returns, and any relevant financial records. These documents will help verify the information provided in your bankruptcy forms.
Once the necessary forms and required documentation are completed, you’ll need to file your bankruptcy petition with the appropriate bankruptcy court. You have to be sure that all forms are filled out accurately and all supporting documents are included. Failure to do so may result in delays or even dismissal of your bankruptcy case.
Automatic Stay and Creditor Communication
When you file for bankruptcy, an automatic stay goes into effect, preventing creditors from taking any further collection actions against you. This means that as soon as you file for bankruptcy, creditors are legally required to stop all forms of communication with you regarding your debts. They can’t call you, send you letters, or take any legal actions to collect the debts owed. The automatic stay provides you with immediate relief from the constant harassment and stress caused by creditor communication.
The automatic stay also extends to any pending lawsuits or legal actions against you. If a creditor has already filed a lawsuit against you, the automatic stay will put a halt to the proceedings. This gives you time to work out a repayment plan or seek legal advice without the added pressure of ongoing litigation.
Yet, there are certain exceptions to the automatic stay. Some types of debts, such as child support, alimony, and certain tax obligations, may not be affected by the automatic stay. If you have previously filed for bankruptcy and your case was dismissed within the past year, the automatic stay may be limited in duration.
Meeting of Creditors and the Trustee
After the automatic stay goes into effect, the next step in the bankruptcy process is the Meeting of Creditors and the Trustee. This meeting, also known as the 341 meeting, is part of your bankruptcy case. It typically takes place about a month after you file for bankruptcy and is scheduled by the court.
During the meeting, you, your attorney, the bankruptcy trustee, and your creditors have the opportunity to ask questions and gather information about your financial situation. Not all the time creditors don’t always attend these meetings. In fact, it’s more common for only the trustee to be present.
The trustee’s role is to review your bankruptcy paperwork, verify the accuracy of the information provided, and ensure compliance with the bankruptcy laws. They’ll ask you questions about your assets, debts, income, and expenses. You should be honest and straightforward when answering these questions.
Discharge of Debts and Financial Fresh Start
To achieve a fresh start and eliminate your debts, the bankruptcy process culminates in the discharge of your financial obligations. This is the final step in the bankruptcy process, where the court issues an order that releases you from the legal responsibility to repay certain debts. The discharge of debts provides you with a financial clean slate and allows you to move forward without the burden of overwhelming financial obligations.
Not all debts can be discharged in bankruptcy. Certain types of debts, such as child support, alimony, student loans, and certain tax obligations, are typically not eligible for discharge. Still, most unsecured debts, such as credit card debt and medical bills, can be discharged through bankruptcy.
Once your debts are discharged, you’re no longer legally obligated to repay them. This means that creditors are prohibited from taking any further action to collect the discharged debts. They can’t contact you, garnish your wages, or file lawsuits against you to collect the discharged debts. You’re granted a fresh start and the opportunity to rebuild your financial life.
Even so, bankruptcy will have an impact on your credit score and financial future. The bankruptcy will remain on your credit report for a certain period of time, typically seven to ten years, depending on the type of bankruptcy filed. It may be more difficult to obtain credit or loans in the future, and you may be offered higher interest rates. It’s difficult to work on rebuilding your credit after bankruptcy by making timely payments and managing your finances responsibly.
When filing bankruptcy you have options depending on your financial situation. The filing process requires documentation, and once you file, an automatic stay goes into effect, stopping creditor communication.
If approved, you may receive a discharge of debts, giving you a fresh start financially. Bankruptcy can be a good option and a relief chance to rebuild your financial future. Remember, it is crucial to hire a bankruptcy attorney who can guide you through the process.