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From Executive Director
One of the questions that most people want answered when they are considering bankruptcy is how does bankruptcy work? Here is an overview of the bankruptcy process.
First, the first thing that people must do before actually filing bankruptcy under either Chapter 7 or Chapter 13 is to receive either an individual or group briefing (including a briefing conducted by telephone or on the Internet) from an approved nonprofit budget and credit counseling agency. The briefing must outline the opportunities for available credit counseling and assist people receiving the briefing in performing a related budget analysis. Also, people filing bankruptcy must receive the briefing within 180 days of filing their bankruptcy petition.
The bankruptcy code does provide for some exceptions from the credit briefing requirement. For example, if an approved nonprofit budget and credit counseling agency is not available, then the requirement can be waived. Also, the requirement may be waived with respect to people whom the bankruptcy court determines, after notice and hearing, are unable to complete the briefing requirement because of incapacity, disability, or active military duty in a military combat zone.
In certain emergency cases, the briefing requirement may be temporarily waived to allow people to go ahead and file bankruptcy and then complete the requirement within 30 days.
The next part of how bankruptcy works is the actual filing of a bankruptcy petition. The
bankruptcy petition along with schedules and attachments discloses all of your property, debts, income, expenses, and financial data. It is important to note that when filing either Chapter 7 bankruptcy or Chapter 13 bankruptcy, you must disclose ALL of your property, debts, income, expenses, and financial data. You cannot pick and choose what you want to disclose. You must disclose everything. If you do not disclose everything, you may be subjecting yourself to bankruptcy fraud which is a federal crime.
An important part of “how does bankruptcy work” is the automatic stay which is activated
immediately upon the filing of a bankruptcy petition. The automatic stay is part of bankruptcy law and it stays or stops creditors from proceeding with or taking action to collect from the person filing bankruptcy.
In Chapter 7 bankruptcy cases, after you file your petition, there will be what is known as a 341 meeting of creditors and equity security holders. At this meeting, the bankruptcy trustee will question you about your debts, property, and other data included in your petition. Creditors may also ask you questions, but in most cases, creditors do not attend the 341 meeting.
If you do not have any property that the bankruptcy trustee can sell, then the trustee will declare your case to be a no asset case, the bankruptcy will be effectively ended, and your debts will be discharged. If you have property that the bankruptcy can sell, the trustee will sell the property, distribute the net proceeds, and then your debts will be discharged. Before the discharge is to be issued, you will need to complete a pre-discharge bankruptcy education course concerning personal financial management.
In Chapter 13 bankruptcy cases, after you file your petition, there will also be a 341 meeting of creditors and equity security holders. At this meeting, the bankruptcy trustee will question you about your debts, property, financial data, and details of your proposed repayment plan. Creditors may also ask you questions, but in most cases, creditors do not attend the 341 meeting. The bankruptcy trustee will usually want modifications in your plan.
Shortly after the 341 meeting of creditors, there will be a confirmation hearing before the bankruptcy court. If the court approves your plan, and most do at this point, then you pay monthly payments to the bankruptcy trustee who then pays the net proceeds to your creditors according to your plan.
After you have made all payments and complied with your plan, you will receive a discharge of debts and your bankruptcy will be ended. As with a Chapter 7 bankruptcy, before the discharge is to be issued, you will need to complete a pre-discharge bankruptcy education course concerning personal financial management.
As you can see, when you successfully complete either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, your dischargeable debts will be discharged and you will not be legally required to pay them. If you do not complete your bankruptcy, then it will be ended without the discharge of debts and creditors may proceed with actions to collect.
In a nutshell, that is the answer to “how does bankruptcy work?” Keep in mind that bankruptcy is technical and very detailed oriented. There are a lot of if’s, and’s, and but’s in the bankruptcy process. Depending on your specific situation, your bankruptcy case may have more “twist and turns” than outlined above and the bankruptcy process may very from the above case outline.
This is general information only. If you have any questions whatsoever, talk with a lawyer licensed in your state who has experience with Chapter 7 bankruptcy, Chapter 13 bankruptcy, or bankruptcy in general.
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