An Overview of Bankruptcy

The three best known types of bankruptcy are Chapter 7, Chapter 11, and Chapter 13, Chapter 7 is a liquidation or “straight” Bankruptcy. This basically involves the discharge of certain debt while you keep only your “exempt” property. Chapter 11 is a procedure for businesses or individuals (usually with complex situations and assets and debts that usually exceed the Chapter 13 limitations) to reorganize their debts. Chapter 13 is a procedure for individuals with a regular source of income to reorganize their debt. It is similar to a Chapter 11, except that the procedure is greatly streamlined, and the creditors do not get to vote.

Synopsis of the Bankruptcy Process: Bankruptcy is federal remedy authorized under the Bankruptcy Code of the United States. The Bankruptcy process is a give and take situation. The law gives the individual Debtor debt relief, and the Debtor gives up certain non-exempt assets. Under this law, individual honest Debtors are forgiven most unsecured debts in order to give them a fresh start in exchange for surrendering all non exempt property to be liquidated for the benefit of their creditors.

Automatic Stay: Upon the filing of a Bankruptcy Petition, the Automatic Stay goes into effect. What this means is the Debtor (i.e. the person filing for Bankruptcy protection) is protected from most collection actions against him and his property. Certain types of actions are not automatically stayed, for example, criminal cases, alimony, maintenance, or support, and governmental police or regulatory actions (such as penalties for code violation, etc.). The New Law has restrictions on the automatic stay. The automatic stay may not be so automatic if you have filed a previous Bankruptcy.

Meeting of Creditors: About 4 to 6 weeks after the Bankruptcy case is filed, a debtor is required to attend a “Meeting of Creditors”” at the Federal Building. This is a short meeting with the Bankruptcy trustee and creditors may choose to attend. In most cases, creditors do not show up for this meeting. The bankruptcy judge does not attend the Meeting of Creditors.

Discharge Order: About 3 months after the Meeting of Creditors, the Bankruptcy Judge signs the “Discharge of Debtor” Order in Chapter 7 cases. In Chapter 13 cases a “Discharge Order” is entered after completion of Plan Payments. Debtors that are found to be dishonest or who have lied about their financial situation may not receive a Discharge.

Exceptions from Discharge: Certain debts are not discharged in Bankruptcy. Examples of these debts are: Student loans, Child support, alimony, debts incurred through fraud, Judgments for vehicular accidents while driving under the influence, and certain secured debts. If you owe a mortgage on your home, your personal obligation will be discharged (forgiven,) however, if you intend to stay in the home you have to make the monthly mortgage payments. In other words “in order to stay..you have to pay.”

Budget and Credit Counseling: Under the New Law, any person that wishes to file a Bankruptcy must enroll and obtain a Certificate of Completion of Budget and Credit Counseling prior to the filing of the Petition. If you fail to obtain a Certificate of Completion of Budget and Credit Counseling, the Bankruptcy Judge will dismiss your Bankruptcy Petition. In order to get a Discharge you also have to obtain a Certificate in Financial Management. Your Attorney will guide you on how to obtain these certificates.