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| Home > Client Services > Bankruptcy Services > Bankruptcy stages |
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| Bankruptcy stages |
Bankruptcy is a federal court process that helps individuals and businesses repay their debts under the protection of the bankruptcy court or wipe their debts out altogether. There are three ways in which you can be made bankrupt. You can file petition for your own bankruptcy, you can be made bankrupt by a creditor, or if you are subject to an Individual Voluntary Arrangement (IVA), your supervisor or any of your creditors involved in your IVA can make you bankrupt.
Types of bankruptcies:
- A Chapter 7 bankruptcy is the most frequent type of bankruptcy filed by many consumers. Chapter 7 is a liquidation arrangement, where all debts are wiped out completely. This is available to individuals, married couples, those in partnerships, and corporations.
- A Chapter 11 bankruptcy gives business owners an opportunity to reorganize their debts. The claims of creditors are either paid entirely or partially by the debtor. In a Chapter 11, the purpose of reorganizing is to restructure the debt so that the debtor can function better with the debts.
- A Chapter 12 bankruptcy is a more simplified reorganization structure. Chapter 12 bankruptcy is for family farmers whose debts meet specific debt restrictions.
- A Chapter 13 bankruptcy is a debt repayment plan available to individuals and married couples who have debts that fall within a specific statutory amount. The Chapter 13 bankruptcy allows debtors to repay either some or all of their debts from their projected future income over a period of 3 to 5 years.
Basically there are two types of bankruptcies for individual or joint petitions. The liquidation bankruptcy is known as Chapter 7 which refers to the the bankruptcy law that allows your assets to be sold off (liquidated) to pay creditors. The second most commonly known as Chapter 13 Bankruptcy which is the reorganization.
PROCESS OF CHAPTER 7 BANKRUPTCY
Usual Time- 4-5 months from filing to discharge
- Mandatory Credit Counseling - Cases that are filed after October 17, 2005, must obtain a certificate from an approved credit counseling agency before filing of a bankruptcy petition.
- Bankruptcy Petition Filing - A bankruptcy petition is an official document a person files in order to begin a bankruptcy case. The bankruptcy petition give the court sufficient information about the filer, which includes contact information, financial details, and information about the filer's creditors.
- Section 341 meeting which is a mandatory meeting with the Trustee - When the petition is filed, a combined order scheduling a meeting of creditors and fixing filing dates for claims, complaints objecting to discharge, and complaints seeking exception to discharge will be sent by the court to all creditors, to the debtor, and to debtor's attorney's office. Generally, this occurs about one month after your case is filed. It is a short and formal meeting which usually lasts a couple of minutes per debtor.
- Time for filing objections By Creditors and Trustee - The trustee has 30 days following your meeting to object to your exemptions. If you claim an asset as exempt on your bankruptcy petition and there is no objection within 30 days after your trustee meeting you may assume the asset is exempt and you may do whatever you want with that asset.
- Personal Financial Management Course - This is the second course that debtors and co-debtors must complete after filing their petition, but prior to being discharged from their case. If you do not take this class in time, your case will be dismissed.
- Discharge - Typically, debtors are discharged from their debts in a chapter 7 case approximately 90 days after filing their petition. In a Chapter 13 case, debtors are not discharged until and unless their plan is successfully completed. If nobody objects to your discharge within the 60 day period referenced above, and you have completed all the other requirements, then you will automatically get your Notice of Discharge.
PROCESS OF CHAPTER 13 BANKRUPTCY
Usual Time- 36-65 months from filing to discharge
- Mandatory Credit Counseling - Cases that are filed after October 17, 2005, must obtain a certificate from an approved credit counseling agency before filing of a bankruptcy petition.
- Bankruptcy Petition Filing - A bankruptcy petition is an official document a person files in order to begin a bankruptcy case. The bankruptcy petition give the court sufficient information about the filer, which includes contact information, financial details, and information about the filer's creditors. In most cases, immediately upon filing your case, an injunction goes into effect stopping your creditors from taking any further action to collect or recover on any debt you owe without first getting permission from the bankruptcy court.
- Repayment Plan - In Chapter 13 bankruptcy petition, along with all your other papers, you file a "Repayment Plan" with your creditors which contains all of your projected disposable income into the plan for a 36- 60 months.
- Section 341 meeting which is a mandatory meeting with the Trustee - This occurs about one month after your case is filed. It is often referred to as the section "341(a) Meeting." See more about this meeting. You'll be contacted for a 341 meeting 1 to 3 months after filing bankruptcy. This is a meeting at which the debtor is questioned under oath by creditors, a trustee, examiner, or the United States trustee about his/her financial affairs. Normally, there will only be one of these meetings.
- Objections to your Plan - When a Chapter 13 debtor files for bankruptcy, the debtor must also submit a repayment plan for approval by the court. The plan lets the court and creditors know how much the debtor intends to pay to creditors. Before the court confirms a plan, creditors have the right to make an objection within a specified time. After all of the objections have been resolved, the court may decide to confirm or not to confirm the plan. If the plan is not confirmed, the debtor can file a modified plan or can convert the case to a Chapter 7 bankruptcy. The court can dismiss the case if it decides not to confirm the plan or the modified plan.
- Claims of your creditors - All the creditors (except government entities) must file their "proofs of claim" within 90 days after the first date set for creditor meeting if the creditors wish to share in the payments from debtors' case. Proofs of claim means the documents your creditors submit to the court specifying how much you owe them. Frequently these claims are for higher amounts than you put in your bankruptcy papers. This can often cause your proposed plan to become infeasible.
- Plan Confirmation Hearing - Within a few months of your meeting with the trustee you will have a Chapter 13 Bankruptcy plan confirmation hearing. Your bankruptcy attorney will tell you if you need to attend this hearing. Once the hearing is completed and the plan has been confirmed you continue to make your monthly payments for the life of the plan. Often the Plan confirmation hearing gets continued in order to allow you to amend your plan or take other necessary steps to make it feasible or to deal with objections that arise.
- Debtor payments - Once the plan is confirmed, the trustee pays creditors regularly from the payments made by the debtor. Your monthly proposed plan payments are first due 30 days after your case is filed and then continue for the duration of your plan. Generally, all payments on debt existing at the beginning of the case must be paid through the trustee; current mortgage payments and some leases are among the exceptions.
- Duties of Trustee – The major duty of a trustee is to receive payments from the debtor, including those from payroll deduction, and disburse them to the creditors. This must all be in accordance with the repayment plan; the trustee cannot withhold payment from one creditor or change the terms of the agreement after approving the plan.
- Discharge - Discharge is the legal forgiveness of debts. The debts are discharged at the completion of the plan. When the discharge is entered, no creditor who had notice of the bankruptcy can try afterwards to collect the debt from you personally unless the debt is one for a non dischargeable debt such as criminal restitution, domestic support, or student loan that wasn't paid in full through the plan. The discharge stays on the credit record for 10 years from the filing of the case, it becomes less and less significant in a creditor's decision to grant new credit with every year that passes.
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