What Is the Bankruptcy Process?
The thought of filing bankruptcy can be daunting and even overwhelming. But understanding the steps involved in the bankruptcy process and how the system works can help you feel more confident as you get started on creating a better financial future for yourself.
Below, we explain the bankruptcy process step-by-step for both Chapter 7 bankruptcy and Chapter 13 bankruptcy. At The Sweeney Law Firm, P.C. we strive to provide our clients with compassionate and efficient legal help.
What to Know Before Filing Bankruptcy
Each bankruptcy case is different, and we understand that your circumstances, needs, and goals are unique. An experienced bankruptcy lawyer can help you assess whether bankruptcy will work for you, as well as which type of bankruptcy best suits your situation.
You will need to disclose to your lawyer whether you have filed for bankruptcy before. This is because those who have received a bankruptcy discharge in the past must wait to file again.
Also, be prepared to participate in a credit counseling course from an approved counselor. You will need to do this 180 days prior to filing for bankruptcy.
Determining Your Eligibility
Both Chapter 7 and Chapter 13 have eligibility requirements. Chapter 7 limits eligibility based on how much you earn. If you earn less than the state median for a household, you are automatically eligible for Chapter 7. If you earn more, you will have to pass a means test which will determine whether or not you can file under Chapter 7. The means test will determine if you are left with enough disposable income to pay back your debts and meet your current financial obligations.
Chapter 13, on the other hand, limits bankruptcy filers based on how much they owe. Those filing under Chapter 13 cannot owe more than $419,275 in unsecured debt. Secured debt cannot add up to more than $1,257,850.
In the event that you make too much to file under Chapter 7 and owe too much to file under Chapter 13, you will have to file under Chapter 11.
Chapter 7 bankruptcy is faster and less complicated than Chapter 13. This is because Chapter 7 typically is for those who don’t have many non-exempt assets. The process involves the following steps:
Mandatory Credit Counseling
Prior to filing for Chapter 7, you will need to receive mandatory credit counseling within the six-month period prior to your petition. You can find a list of places that offer credit counseling pre-filing here. Before your bankruptcy can begin, you must present proof of completion to the court.
File a Petition
Your bankruptcy case starts with the filing of a petition with the bankruptcy court. You will also need to complete forms where you will list your finances and any exemptions you will claim. Filing a petition prompts the court to issue an “automatic stay”. This stops all creditor collection actions against you during your bankruptcy. Once you file, the bankruptcy court will name a trustee to manage your case.
The Trustee Takes Over Your Estate
While your bankruptcy is being processed, the court will appoint a trustee. All of your property becomes part of your bankruptcy estate which the trustee now controls. If the trustee finds any non-exempt property that they can liquidate, they will do so to repay your creditors. In a typical Chapter 7 bankruptcy, the trustee does not find significant property to liquidate. This is even more true of those who file in Texas because Texas law allows them to protect more of their property.
Meeting of Creditors
You must attend a meeting of creditors with the trustee and creditors scheduled within 60 days of filing. More often than not, creditors will not attend the meeting. The trustee and creditors will ask about your finances and what you reported on your petition.
Confirmation of Eligibility
If the information reviewed by the trustee justifies it, they will confirm your eligibility to file for Chapter 7 bankruptcy. The trustee will not confirm your eligibility if you do not pass the means test, or earn too much. Even if the court denies your eligibility, you could still be eligible to file for Chapter 13 bankruptcy.
Dealing With Your Property
The trustee, who is now in control of your estate, will liquidate the assets that you cannot protect. If you have significant secured debts that cannot be paid, you will have to forfeit the property the debt is secured by.
In cases where you intend on keeping the property, the debt will need to be reaffirmed so that it survives the bankruptcy.
Take a Course
Before your debts are discharged, you must complete a debtor’s education course.
Typically within four to six months from the date of your filing, you will receive a notice in the mail. The notice will state that your debts are discharged and your automatic stay is lifted. After your discharge, your bankruptcy case is officially closed.
A Chapter 13 bankruptcy usually takes longer than a Chapter 7. In a Chapter 13 bankruptcy, your debts are discharged after completion of a three to five year repayment plan. The process for Chapter 13 is typically as follows:
File a Petition
The process starts with filing your petition and forms with the court. The filing will trigger an automatic stay that stops all collection actions. At this time, the bankruptcy court will appoint a trustee to handle your case.
File a Chapter 13 Repayment Plan
You will have to file a Chapter 13 repayment plan within two weeks of filing your petition. The plan will provide which debts will be paid over the following three to five years.
Meeting of Creditors
A meeting of creditors will be scheduled within two months after filing your petition. The meeting will be an opportunity for the trustee and any creditors who show up to ask you questions. They will ask about your finances and repayment plan.
Chapter 13 Confirmation Hearing
Within 45 days of the meeting of the creditors, you and your lawyer will participate in a confirmation hearing. The trustee and creditors can object to your repayment plan at the hearing. If there are no objections, your plan will be confirmed.
Unlike Chapter 7, a Chapter 13 case stays open until you have met your repayment plan commitments. Within 30 days of filing your repayment plan, you must start making payments. It does not matter whether your repayment plan has been approved.
Take a Course
During your bankruptcy, you must participate in a financial management course, which can be taken online.
Your Chapter 13 bankruptcy ends at the end of your repayment period. At that point, your debts are discharged.
Chapter 11 Bankruptcy
While it’s mostly businesses that file for Chapter 11, individuals can as well, particularly those who make too much for Chapter 7 and owe too much for Chapter 13.
Chapter 11 bankruptcy proceeds like a Chapter 13 bankruptcy but does not have a fixed end date. In Chapter 11, you continue making payments until the debts are settled and the agreed upon restitution is repaid. There are some other differences between Chapter 13 and Chapter 11.
Monthly Operating Reports
Those in Chapter 11 are required to file monthly operating reports with the court. These reports outline your income and expenses on a monthly basis. The reports are made available to your creditors by the trustee. These reports will reflect on your ability to make the payments in Chapter 11.
Disclosure Statement and Hearing
You are required to file a disclosure statement and send a copy to each of your creditors as well as the bankruptcy judge and the trustee. The disclosure statement stipulates how creditors are to participate in the bankruptcy and what rights they are forgoing in the bankruptcy. The creditors will have an opportunity to object to the language of the disclosure statement. Additionally, the disclosure statement makes your financial information available to your creditors so that they can agree or reject the reorganization plan.
Learn More About the Bankruptcy Process
Bankruptcy can give you the financial fresh start you need. But it’s best handled with the help of an experienced Memphis bankruptcy attorney. At The Sweeney Law Firm, P.C. we can help you before, during, and after the bankruptcy process. Contact us today for a free consultation.