Bankruptcy Process: What Does It Mean, How Do I File, and What Happens After I File Bankruptcy?
I talk about bankruptcy all the time.
I use the term so often that I automatically assume everyone understands what it means to file bankruptcy.
The simple truth is that bankruptcy means something different to almost everyone.
I am going to try to explain what exactly it means to file bankruptcy and how it can benefit some people.
First off, when people mention bankruptcy they often envision the end of their financial lives and little or no hope on the horizon.
While that is true for some people, bankruptcy is a legal tool available to those who are unable to pay their debts.
Whether you make thousands of dollars a week or live off of a small income, there is a type of bankruptcy that protects you from creditors so that you can gain control of your financial life.
There are several different types of bankruptcy.
For consumers, there are two main types.
These are Chapter 7 bankruptcy and Chapter 13 bankruptcy.
While I have explained the difference between Chapter 7 bankruptcy and Chapter 13 bankruptcy in depth in other articles, Chapter 7 is designed for those who have a limited income and consumer debt.
Chapter 13 is designed for someone who has regular income and may benefit from some of the features of a Chapter 13 such as eliminating a second mortgage.
When most people think of bankruptcy, they think of Chapter 7 bankruptcy.
The information below assumes a Chapter 7 bankruptcy.
In order to file bankruptcy, you or your attorney must file a petition, schedules, and statements with important personal and financial information.
Because an attorney will need all of this information to prepare your documents, they will likely have you complete a questionnaire that asks about your income, monthly expenses, debts, assets, and other financial information.
The petition, schedules, and statements require a familiarity with bankruptcy law and would be difficult to complete without experience in the area.
In a lot of ways, bankruptcy documents are like tax returns but they are much longer and require much more information.
Since most people hire someone to complete their taxes, it makes sense to hire an experienced bankruptcy attorney to complete your bankruptcy.
Upon filing the bankruptcy documents, the court will issue notice to all the creditors you listed on your documents that you have filed bankruptcy.
It is important that you list all your creditors as failure to notify one of them may negatively affect your ability to discharge that debt.
However, if you discover the error during the bankruptcy, you will still be able to add the creditor through an amendment.
Also, upon filing your bankruptcy petition the automatic stay goes into effect.
The automatic stay is a legal wall that stops creditors from taking any legal action against you.
If you have a pending judgment, active garnishment, foreclosure, repossession, or other action, the creditors must stop from pursuing their claim any further because of the automatic stay.
While this stay will not last forever, it will give most creditors enough time to decide how they want to proceed with certain debts and possibly negotiate new terms on the debt.
Approximately 45 days after the bankruptcy is filed, the court will schedule a 341 meeting of creditors.
The 341 meeting is designed to confirm your identity, answer questions the trustee has about the debtor's finances, and allow creditors to ask questions.
It is rare for a creditor to appear but they are allowed to appear at this hearing.
After the initial 341 hearing, creditors have 60 days to object to the dischargeability of certain debts and raise other defenses to the bankruptcy.
Again, this is not a common thing to happen in bankruptcy and your attorney can explain in more depth about what to expect.
Once that 60-day period has passed, the court is free to enter the Discharge order.
The discharge is an order from the court declaring that you are no longer legally liable for the qualifying debt.
In most cases, this will include the consumer debt including credit cards, medical bills, personal loans, and other debt listed on your schedules.
Once your bankruptcy is complete and you have received a discharge, you are free to rebuild your financial life and restore your credit.
While credit is one of the biggest concerns most clients have about bankruptcy, most clients find their credit improves dramatically after bankruptcy.
Your credit report will continue to report a bankruptcy for several years in the future, but your credit score will make credit available to you.
I use the term so often that I automatically assume everyone understands what it means to file bankruptcy.
The simple truth is that bankruptcy means something different to almost everyone.
I am going to try to explain what exactly it means to file bankruptcy and how it can benefit some people.
First off, when people mention bankruptcy they often envision the end of their financial lives and little or no hope on the horizon.
While that is true for some people, bankruptcy is a legal tool available to those who are unable to pay their debts.
Whether you make thousands of dollars a week or live off of a small income, there is a type of bankruptcy that protects you from creditors so that you can gain control of your financial life.
There are several different types of bankruptcy.
For consumers, there are two main types.
These are Chapter 7 bankruptcy and Chapter 13 bankruptcy.
While I have explained the difference between Chapter 7 bankruptcy and Chapter 13 bankruptcy in depth in other articles, Chapter 7 is designed for those who have a limited income and consumer debt.
Chapter 13 is designed for someone who has regular income and may benefit from some of the features of a Chapter 13 such as eliminating a second mortgage.
When most people think of bankruptcy, they think of Chapter 7 bankruptcy.
The information below assumes a Chapter 7 bankruptcy.
In order to file bankruptcy, you or your attorney must file a petition, schedules, and statements with important personal and financial information.
Because an attorney will need all of this information to prepare your documents, they will likely have you complete a questionnaire that asks about your income, monthly expenses, debts, assets, and other financial information.
The petition, schedules, and statements require a familiarity with bankruptcy law and would be difficult to complete without experience in the area.
In a lot of ways, bankruptcy documents are like tax returns but they are much longer and require much more information.
Since most people hire someone to complete their taxes, it makes sense to hire an experienced bankruptcy attorney to complete your bankruptcy.
Upon filing the bankruptcy documents, the court will issue notice to all the creditors you listed on your documents that you have filed bankruptcy.
It is important that you list all your creditors as failure to notify one of them may negatively affect your ability to discharge that debt.
However, if you discover the error during the bankruptcy, you will still be able to add the creditor through an amendment.
Also, upon filing your bankruptcy petition the automatic stay goes into effect.
The automatic stay is a legal wall that stops creditors from taking any legal action against you.
If you have a pending judgment, active garnishment, foreclosure, repossession, or other action, the creditors must stop from pursuing their claim any further because of the automatic stay.
While this stay will not last forever, it will give most creditors enough time to decide how they want to proceed with certain debts and possibly negotiate new terms on the debt.
Approximately 45 days after the bankruptcy is filed, the court will schedule a 341 meeting of creditors.
The 341 meeting is designed to confirm your identity, answer questions the trustee has about the debtor's finances, and allow creditors to ask questions.
It is rare for a creditor to appear but they are allowed to appear at this hearing.
After the initial 341 hearing, creditors have 60 days to object to the dischargeability of certain debts and raise other defenses to the bankruptcy.
Again, this is not a common thing to happen in bankruptcy and your attorney can explain in more depth about what to expect.
Once that 60-day period has passed, the court is free to enter the Discharge order.
The discharge is an order from the court declaring that you are no longer legally liable for the qualifying debt.
In most cases, this will include the consumer debt including credit cards, medical bills, personal loans, and other debt listed on your schedules.
Once your bankruptcy is complete and you have received a discharge, you are free to rebuild your financial life and restore your credit.
While credit is one of the biggest concerns most clients have about bankruptcy, most clients find their credit improves dramatically after bankruptcy.
Your credit report will continue to report a bankruptcy for several years in the future, but your credit score will make credit available to you.
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