2 Types of Bankruptcy Petitions
Filing Personal bankruptcy is undoubtedly one of the most difficult financial decisions someone can make in their life. Most financial advisors warn to thoroughly investigate every alternative to bankruptcy for solving financial problems and use it only as a last resort. Assuming protection under bankruptcy law is the only remaining option to debt relief there are two types of bankruptcy petitions: Chapter 7 and Chapter 13.
Chapter 7 is designed to discharge debt obligations by selling the debtors assets and paying as much as possible to creditors from the proceeds of the sale effectively wiping the slate clean and allowing the debtor to start over with their finances. Chapter 13 is a debt reorganization plan where debts are rescheduled for payment over a three to five year period normally paid through a trustee. A chapter 7 bankruptcy filer generally must pass an income means test. If someone is making too much income to qualify for chapter 7 then only chapter 13 is available.
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The Most Asked Question about Bankruptcy Laws
Frequently the most asked questions about consumer bankruptcy are about the loss of property. The answer depends on state exemption laws. The bankruptcy law of the state where the chapter 7 bankruptcy is filed will specify what property is classified as exempt. State bankruptcy laws can exempt home equity and a small portion of auto and personal property equity. With chapter 13 assets are not liquidated so no property is lost.
Filling the Petition
Filing bankruptcy becomes official when a petition is filed with the local bankruptcy court having jurisdiction. Although It is legal to file "pro se" without an attorney it is highly recommended that an attorney assist in preparing and filing the petition to first determine whether chapter 7 or chapter 13 is the most appropriate path and secondly to protect as many assets as possible.
The Trustee
One of the first steps after the petitioner has filed will be for the judge to assign a trustee to the case. The trustees' job for chapter 7 filings is to liquidate the nonexempt property and distribute the proceeds to creditors based on the legal precedence of their claim. The function of the trustee in Chapter 13 is similar except disbursements to creditors are made from payments made to the trustee over the payment plan schedule specified by the court rather than from the liquidation of assets.
The trustee will schedule a 314 meeting of creditors. The bankruptcy filer is required to attend this meeting however the creditors are not. During the meeting the trustee will ask and the bankruptcy filer will answer questions under oath and minutes of the meeting will be recorded by a court recorder. Unless there are special circumstances this will be the last court required meeting the filer will have to attend.
Completing the Process
With chapter 7 bankruptcy creditors normally have thirty days to file an objection to property exemptions then another thirty days to object to the discharge of the debt owed to them. As soon as the debtors assets are tuned into cash and dispersed to the creditors a discharge of debt is granted by the court. If the filing is chapter 13 the creditors have the right to object to the payment plan specified by the court. With chapter 13 the discharge of debts will not be granted until the end of the payment plan period which can last up to five years. When the payments are completed the debt is legally discharged and the case is closed.
Legal Advice from a Bankruptcy Attorney
No one should make the decision to file for bankruptcy or attempt to handle the matter on their own after the decision is made. The process of filing for bankruptcy is a complex legal matter and should be handled only by competent licensed professionals.
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