Bankruptcy is a government-sponsored legal proceeding you can use to reorganize, fix or totally get rid of your debt, depending on your financial situation. While bankruptcy can be very helpful if your financial situation is overwhelming, it is also poorly understood. So, we decided to put this blog together explaining some of the things you might expect if you file for bankruptcy protection.
Filing for Bankruptcy Protection
Hire a Lawyer
Given the complicated procedures surrounding bankruptcy filings, you really need to hire a bankruptcy lawyer who can protect your rights and help you through the process. Some law offices, especially those who do mostly bankruptcy cases, make a special effort to guarantee that bankruptcy protection is quickly available to EVERYONE who needs it, by charging lower fees and offering affordable payment plans.
Paperwork and Credit Counseling Classes
To start a bankruptcy case, you’ll need to tell the court about your debts, income, assets, and financial transactions. You’ll do so by completing official bankruptcy forms and submitting supporting documents, such as bank statements, paycheck stubs, and income tax returns. Bankruptcy law also requires people to take short, court-approved credit counseling classes before and after the case filing. After you complete each course, you must file a Certificate of Completion with the court. Again, reputable bankruptcy attorneys can walk you through this process and make it much simpler.
Stopping All Collection Activities
Immediately after you file a bankruptcy case, the Bankruptcy Court automatically provides protection from your creditors. This “Automatic Stay of Proceedings” is essentially a court order that stops bill collectors immediately and remains in effect until your case ends, or until a creditor asks the court to remove the protection from you and the court agrees to do so (which doesn’t happen too often). As long as the protection is in place, creditors cannot continue ANY of their collection actions—meaning the mere filing of a bankruptcy case will stop wage garnishments, lawsuits, foreclosures, repossessions, letters, and phone calls.
Meeting of Creditors
Shortly after filing for bankruptcy, you and your attorney will attend a hearing called the 341 Meeting of Creditors. A bankruptcy trustee conducts the hearing and asks you questions under oath about anything that the trustee feels might need clarification. If creditors decide to attend, they can ask you questions about your assets, income, and financial transactions as well. Most attorneys provide significant protection for their clients at these meetings, keeping the trustee or the creditors from becoming too overbearing. In most cases, the 341 Meeting of Creditors hearing is the only time you will interact with a bankruptcy official.
In a Chapter 7 case, the trustee is looking for “unprotected property” of yours to sell, so they can make a commission and distribute the rest of the money to your creditors (a good bankruptcy lawyer knows how to protect everything the average client might own, so the clients lose nothing when they file bankruptcy).
In a Chapter 13 bankruptcy, the trustee will oversee your Chapter 13 Repayment Plan, collect your payments into that Plan, and distribute money to your creditors according to the Plan you and your attorney came up with (after the court approves it).
After the Bankruptcy is Over
Your Debt Gets Wiped Away
Not all debts are treated the same way in bankruptcy, and the treatment depends on the type of debt. For instance, you’ll be able to totally wipe away major credit card debt, medical bills, personal loans and utility bills. But you’ll still remain responsible for things like student loans, some (but not all) taxes, most criminal fines, and alimony or child support.
Your Bankruptcy Discharge is simply a Federal Court Order making it official that you are no longer responsible for paying back those qualifying debts listed above. After the Bankruptcy Court approves your Discharge of Debts, creditors cannot try to make you pay on any of those discharged bills. In fact, if the bankruptcy court finds that a creditor came after you to try and collect on any debt you walked away from as part of your bankruptcy, the Judge can level penalties against the bill collectors!
Accounts Can Be Closed
You’re required to list everyone that you owe money to in your bankruptcy paperwork. Your creditors find out about the bankruptcy because the court automatically sends notices out to all of them when your bankruptcy case gets filed. Many lenders will cancel any open lines of credit, even if you’re current on payments, but you will often get pre-approved credit cards in the mail DURING AND AFTER your bankruptcy case! Many credit card companies look for people who have recently filed bankruptcy and offer them pre-approved charge accounts or opportunities to finance vehicles, knowing that the people who filed bankruptcy have wiped away most of their debt and these new creditors have little competition for your business.
To schedule a no-obligation visit with an attorney at any of our offices, please call (800) 978-4788 or fill out an appointment request online. Bankruptcy isn’t the end, it’s the beginning of a better life.
The law is there to help you… and so are we!