The Bankruptcy Process
Filing for bankruptcy gives you access to some powerful tools for taking control of your finances and keeping creditors at bay. This page explains how the bankruptcy process works from start to finish.
When you contemplate a bankruptcy filing, it is important to gain the advice of an attorney. We offer free consultations to all prospective bankruptcy clients, so there is really no risk in learning what options you have to tackle your debt problem.
After you have decided to file for bankruptcy, you will have to provide paperwork and fill out worksheets for us to help you. Since most of our clients are in financial distress, a payment plan is set up for the remainder of any attorney fees due.
Once the intake meeting has taken place and the contract is signed, one of the first things all of our clients are asked to do is complete Consumer Credit Counseling. Since October 17, 2005, all consumer bankruptcy filers have to complete and obtain a certificate from an approved credit counselor before you can file a bankruptcy case. The cost for consumer credit counseling is about $50 and can be done on-line, or on the telephone.
In all cases, we make time to complete a thorough review of each debtor's circumstances and can telegraph all the issues prior to filing the case. Since we have a full service individualized practice, be prepared to spend about 1½–2 hours with our staff to finalize all aspects of your case. If everything is in place and there are no other legal issues that demand additional research, your case will be filed electronically from our office on our next scheduled filing date.
Paperwork, Paperwork, Paperwork
Like most legal proceedings, bankruptcy comes with its share of paperwork, including the bankruptcy petition, schedules, a Statement of Financial Affairs, and in the case of Chapter 13 and Chapter 11, the bankruptcy plan (or "the Plan," as it is often referred to). Our office helps you compile all these documents, and we will review them so that you feel comfortable signing them under penalty of perjury. Once the case is filed, you will be assigned a case number, and this commences your case. We take all the information you have brought in, run it through our computer system and go over it with you in detail prior to the filing. Before you file, you should feel very comfortable with the process and what is going to happen.
The Automatic Stay
One of the most important benefits of filing for bankruptcy comes at the moment you file. An automatic stay is an injunction that immediately goes into effect upon the filing of a bankruptcy case and stops all debt collection by creditors, with limited exceptions. In real world terms, that means that collection actions against you or your property, including repossessions, garnishments, and foreclosure actions, immediately cease. As long as the stay is in effect, creditors cannot initiate or continue lawsuits, wage garnishments, or even call you on the phone to demand payment. (Complications apply when a debtor has had a prior dismissed case in the past 12 months, or if certain other conditions are met. If this is the case, please tell us and will make sure to file the motion you need to get the court to impose the stay.)
The commencement of a bankruptcy case also creates an estate, which becomes the temporary legal owner of all of the debtor's property. The estate consists of all legal or equitable interests of the debtor in property as of the commencement of the case, including property owned or held by another person in which the debtor has an interest. Generally speaking, the debtor is entitled to claim exemptions that protect certain assets during the bankruptcy process. The debtor's creditors are paid from any nonexempt property held by the estate. The vast majority of cases filed are no-asset cases meaning that the debtors lose no property as a result of filing bankruptcy.
Meeting with the Trustee and Creditors
This mandatory meeting is often colloquially called a 341 meeting, after the section of the United States bankruptcy code that governs it (11 U.S.C. §341). It is an informal meeting where you and your attorney will meet with the bankruptcy trustee, an independent person who is automatically appointed when the case is filed. The trustee works for the United States Trustee's Office (an administrative branch of the U.S. Department of Justice) and is charged with administering a bankruptcy estate, accounting for the debtor's non-exempt property, and safeguarding the interests of all parties according to the law. This is generally a routine hearing where you will provide evidence of your identification, such as your Social Security card, and testify that you reviewed, signed and understand the documents you filed with the court. There may be additional questions about your asset valuations, non-exempt assets, plan of reorganization, or any property you sold within the two years before the bankruptcy filing.
After the 341 meeting, the trustee and creditors are given an opportunity to file objections. The trustee has until 30 days after the date first set for your meeting to file an objection to any exemptions you have claimed. This is rare, and we will work with you to minimize the chances of it happening.
In addition, your creditors have until 60 days after the date first set for your meeting with the trustee to file a motion objecting to the discharge of your debt. Grounds for objection include fraud (for example, if you incurred a debt that you did not intend to repay or did not have a reasonable ability to pay at the time), lying on a credit application, committing willful or malicious injury to a person or property of a person, and others. Creditors that have been properly notified of your bankruptcy case must either file a complaint or move for an extension of time to file before the end of the 60–day period.
Usually no objections are filed and you can proceed through bankruptcy. If a creditor does file an objection, a trial is scheduled, and you must decide whether to offer a defense, negotiate a settlement, or choose not to contest the complaint. We can help you decide the best option to take.
Financial Management Course
One of the new requirements imposed by the 2005 law that modified the bankruptcy code is that bankruptcy filers must complete a financial management course before receiving a discharge. The course is offered through a number of institutions; it takes about 2 hours to complete, can be done over the telephone or on the Internet as well as in person, and typically costs around $50. We will help you get the course scheduled and ensure that the court receives your certificate of completion within the period of time required.
If you complete all the requirements and no one objects to your discharge within the time allotted, you will receive a Notice of Discharge in the mail, signifying that you are clear of all dischargeable debts accounted for in the bankruptcy process. (Certain debts, such as child support, alimony, certain taxes, student loans, and some others, are not dischargeable. We'll help you figure out what non-dischargeable debts you have and develop a plan for resolving them.) Depending on the nature of your case, the bankruptcy trustee may continue to work with your estate, including liquidating non-exempt assets, for some time after you receive your notice.
The discharge process does not discharge any debts owed to creditors that did not receive notice of your bankruptcy filing. If such a creditor later learns of your case, it may be able to reopen the case and challenge your discharge, under some circumstances.