Brent’s Credit and Debt blog

So you are filing for bankruptcy.  You are taking the plunge.  A bit confusing, isn’t it?

Well, the process is pretty well laid out.  There are a few steps you will take, and then with luck, it will be over.  I’m going to give you a quick overview, but you really should ask your lawyer what to expect.

First, you have to file for bankruptcy.  While you can do this yourself, I would definitely recommend an attorney to help you out.  After all the paperwork is filled out, it is turned in to the bankruptcy court.  The court stamps the application with the date they receive it, and that becomes your filing date.

After filing, you get to wait for your hearing.  This hearing, known as the ‘341 Hearing’, named for the section of the US Bankruptcy Code that describes it, is a meeting between yourself, your attorney, your creditors, and the bankruptcy trustee assigned to your case.  It is unlikely that creditors will show up for this.  Most of us have very few assets if we are filing bankruptcy, and we really have very little to contribute to the repayment of debt.  Sears is not going to come after your washer and dryer, as they have no real value.  It is cheaper for them to take a charge-off against the loss and get a big tax break.  Your mortgage company, or car loan holder may have something to say about things, but in many cases they won’t show up either. 

The trustee gets paid by the case, so they want to keep things moving along.  Most meetings only take a half hour or less, and the trustee will see dozens in a day.  They really don’t care about your personal situation, so you won’t need to explain much.  All you really need to do is answer a few questions, and it is over.  The trustee has the right to take some property in a Chapter 7, but you will probably keep your house, a vehicle, and your furnishings.  They will take jewelry, cash, savings, and firearms that can be easily sold, along with other assets as they see fit, unless you are filing a Chapter 13..

If you are filing Chapter 7, that is usually it.  You probably won’t meet the judge, and probably will never have to look at the case again until you start to fix your credit.  You will wait for your discharge, which I will explain in a minute.

In a chapter 13, however, you will get to meet the judge.  Usually, this is an informal hearing to talk about the repayment plan that you come up with and present to the trustee.  If you file Chapter 7, but still have the ability to repay, the trustee will change it to a chapter 13 and help you set up a payment schedule.  This payment schedule will usually last from 3 to 5 years, and then the remaining debts will be discharged.  Usually, you get to keep all your stuff in a Chapter 13.

About 3 months after a Chapter 7 hearing, you will get a discharge.  This means you are free from the debts you had before the bankruptcy, unless you worked things out with your creditors to keep them.  That’s it.  It’s over.  You get to start rebuilding.  The date of the discharge is, kind of obviously, called the discharge date, and that is the date that things are final.

With a Chapter 13, you make all the payments on your schedule, and then you get the discharge.  You are free of the debts on your schedule, and get to keep your stuff.  Of course, anything you reaffirmed with your creditors may still require payments, like your house for instance.  Keeping your debts, such as a house or car, is known as a reaffirmation, and that means you are reaffirming that you will pay for the debt.

A couple of caveats here:  If the court decides that you aren’t worthy of bankruptcy, they may issue a dismissal, which says that the bankruptcy did not go through.  It still shows up on your credit report, but you don’t get the advantages of completing the process.  If that happens, there will be a dismissal date on your report.  You can always re-file to correct the problem, but if they had a reason to dismiss, you may be in trouble anyway.

Finally, if you want to quit your bankruptcy, you can do that any time prior to the discharge date, which means you are still liable for ALL of the original debt amounts.  This is called a cancellation, and you will see a cancelled date on your report.

Want all the ugly details?  You can find more information here:  http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/process.html.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link.  You will be taken to a page where you can get more information about downloading the e-book.  This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.