What Happens in Bankruptcy?
Bankruptcy is a federal legal process for obtaining relief from debt. Much work is done prior to filing bankruptcy to plan, including planning, consultation, and the actual preparation of the bankruptcy papers. Once the bankruptcy petition is filed with the federal bankruptcy court, the bankruptcy case is open. Also filed with the court are detailed schedules and forms providing a complete picture of the debtor's finances, including assets, debts, income, and expenses.
Early in the Bankruptcy Case
The imposition of the automatic stay is one of the first things that happens after filing bankruptcy. This stay requires that creditors halt collection activity while the bankruptcy is pending, and provides a measure of quick relief to a debtor. The court will notify your creditors that you have filed, and give them instructions concerning the filing of claims and other objections.
A 341 meeting of creditors is scheduled for every debtor early in the case. Creditors are notified of the meeting, but usually do not appear, and instead the typical meeting is only the trustee inquiring of the debtor about his or her finances. While an official meeting, this is not a judicial hearing and the judge assigned to your case will not be present. For more about the creditors' meeting, see what is the meeting of creditors?
Chapter 7 Concludes
The process for a chapter 7 bankruptcy and chapter 13 bankruptcy diverge after the creditors' meeting. In a chapter 7, if no objections have been filed concerning the discharge, the court will enter a discharge order several weeks following the creditors' meeting without further hearing. This discharge order wipes out personal liability on old debt and provides the bankruptcy fresh start. In a chapter 7 bankruptcy, the trustee will make a determination if you have any property that should be sold to pay creditors. The trustee's determination takes into account your property allowances under exemption law, as well as the practicality of actual sale. If trustee is not selling any property, meaning that there are no assets for creditors, the case will close shortly. If the trustee is distributing money, creditors will file claims and the case will proceed for some period of time as claims are evaluated and paid by the trustee.
Chapter 13 - Plan and Payments
In a chapter 13 bankruptcy, obtaining court approval (confirmation) of the debtor's chapter 13 plan follows the creditors' meeting. In some cases, the plan that the debtor proposed when starting the case will be accepted by the trustee, creditors, and the court. In other cases, there will be disagreement over the plan, and there may be court hearings concerning whether the plan should be approved or an alternative plan proposed. What is permissible to include in a chapter 13 plan is outlined in the bankruptcy code.
A chapter 13 plan will generally, but not necessarily, include any secured debts that a debtor is continuing to pay, such as car loans and home mortgages. The plan will also include priority claims such as taxes owed and will include compensation for the trustee and debtor's attorney. The plan may or may not pay unsecured debts, such as credit cards, depending on the debtor's income, assets, and desires. Plan payments based on your proposed chapter 13 plan begin shortly after you file and continue until the plan is completed. Once the chapter 13 plan is completed, the debtor can obtain a discharge which will wipe out most remaining debt.
Following entry of a discharge order, the debtor gains permanent rights to be left alone regarding debts that have been eliminated by the discharge. These rights can be enforced in the bankruptcy court long after your case has concluded.