What Happens When You File for Bankruptcy?
Monday, February 25, 2019, 6:00 AM | Leave Comment
The term “bankruptcy” instills fears in the hearts of many individuals living in debt.
People often immediately start picturing repossession, foreclosures and homelessness as soon as that term is brought.
To be honest, however, bankruptcy is a term that is very misunderstood. Big companies such as General Motors and even United Airlines have all filed for bankruptcy and are still in business. So it is not exactly the death sentence people presume it to be.
As an individual, however, you may not have the kind of grace and understanding that most companies would give to huge conglomerates like General Motors when you file for bankruptcy. That is one of the main reasons why you need to read more on how to repair your credit before and after filing for bankruptcy because as soon as you file for Chapter 7, 11, or 13, that fact remains on your credit report for up to ten years.
So what else happens when you file for bankruptcy?
The first thing you need to know is that it is always a good idea to hire or consult with a bankruptcy lawyer before you file for Chapter 7, 11 or 13. These professionals are best placed to guide you through the murky waters and procedures involved in properly filing for bankruptcy.
That being said, here are some of the things that you need to know about what happens after you file for bankruptcy:
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You Will Be Required to Fill Out All the Necessary Legal Paperwork
To start things off, you will need to tell the court about all your debts. You will also have to disclose your assets, income and financial transactions. This is done by filling out a series of official bankruptcy forms. You will also have to hand in supporting documents that include:
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Bank statements
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Income tax returns
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Paycheck stubs
You will also be required to take online credit counseling classes before and after filing for bankruptcy. These classes are a crucial part of the legal proceedings as you will be required to file the certificates with the court after each course and failing to do so in a timely fashion might lead to your case being dismissed.
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Collection Activities Will Cease
There is something called an “Automatic Stay” protection that kicks in immediately after you file for bankruptcy. This is a court order that stops your debtors from collecting on their loans by selling off your assets. This order will stay in place as long as the case is ongoing or unless a creditor asks the court to lift it and the court agrees (not very likely). As long as this stay order is in place you do not have to worry about creditors garnishing your wages, suing you, making threatening phone calls or any other form of collection action.
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Your Creditors Will Be Called for a Meeting
Once you have filed for bankruptcy, you and your bankruptcy lawyer will attend a meeting where all your creditors will have the chance to ask you question (most creditors do not come for this meeting). This meeting will be conducted by a court appointed bankruptcy trustee and you will be asked about your assets, income, financial transactions.
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In the case of a Chapter 7 the appointed trustee will sell off the assets that you cannot keep and distribute that money among your creditors.
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In the case of a Chapter 13 the appointed trustee will oversee your repayment plan, collect the money and distribute it to your creditors.
It is during these hearings that you will interact with the bankruptcy official. They may ask you questions under oath just to clarify a few things such as your identity.
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Some of Your Debt Might Get Wiped Out
Once you file for bankruptcy, there are certain debts that will almost always be completely wiped out.
These include:
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Major credit card debt
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Department store debts
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Personal loans
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Medical bills
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Utility bills
You will, however, remain responsible for other forms of debt such as:
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Student loans
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Family support
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Taxed
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Fines and restitution
In case of a Chapter 7, you will have to be current on your home and car payments if you want to keep them. However, if you are behind and have enough money coming in to keep paying them, they can fall under Chapter 13.
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You will Receive a Bankruptcy Discharge
This is a court order saying that you do not have to pay for qualifying debts. Once the courts have approved a bankruptcy discharge on the selected debts, your creditors can no longer come a knocking. If they do so, there may be penalties imposed on them by the courts.
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Your Lenders Will Close Your Accounts
As part of the legal process, you are required to list everyone that you owe money when filing for bankruptcy. All these people will get mailed a notification as soon as you file and they will then proceed to close all your lines of credit even if you are current on your payments.
After filing for bankruptcy, you will be expected to live in a frugal manner and forego all credit until you rebuild your financial health.
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