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| Bankruptcy Basics |
Bankruptcy is the legal process in which a person or business that has
become unable to pay its bills may have those debts canceled, or
“discharged,” thereby relieving the individual or business from having to pay
those debts. The purpose of bankruptcy is to allow one who has suffered
financial hardship to receive a fresh start.
Bankruptcy law is federal law and is thus drafted by Congress in accordance
with Article I, Section 8 of the United States Constitution, which authorizes
Congress to enact “uniform Laws on the subject of Bankruptcies....” Title 11
of the United States Code is where Congress wrote the bulk of the law
regarding bankruptcy, and therefore Title 11 is commonly referred to as “the
Bankruptcy Code.”
The Bankruptcy Code currently provides five different chapters under which
a person or business may file a bankruptcy proceeding: Chapters 7, 9, 11,
12, and 13.
Chapter 7 is available to individuals and to corporations, and is commonly
known as “total bankruptcy” or “liquidation.” This is the most commonly filed
chapter of bankruptcy, and it is discussed in greater detail in the “Chapter 7
vs. Chapter 13” link.
Chapter 9 is available only to municipalities, and is therefore an extremely
rare form of bankruptcy.
Chapter 11 is utilized principally by businesses, and is often referred to as
“business reorganization.” It is generally rather expensive and is usually only
filed by sizable companies.
Chapter 12 is available only to farmers. This is a reorganization chapter
similar to Chapter 13, but is only available to persons who derive around
80% or more of their income from farming.
Chapter 13 is available to individuals and sole proprietorship businesses, but
not to corporations or partnerships. This chapter is commonly known as a
“wage earner plan” or “individual reorganization.” This is the second most
common form of bankruptcy, and is discussed in greater detail in the
“Chapter 7 vs. Chapter 13” link.
The first step one generally takes in filing for bankruptcy is to contact a
bankruptcy attorney and set up a consultation. After the consultation, the
attorney will advise the person to either file a bankruptcy or pursue some
other course of action, as circumstances dictate. If one does opt to file
bankruptcy, that person must consult with an approved credit counseling
agency either on the internet, by telephone, or in person for approximately
one hour and obtain a certificate from that agency. This certificate is good
for 180 days and must be obtained before the bankruptcy case is filed. Also,
the person seeking to file bankruptcy has to complete a two hour online
course prior to their case becoming final. Only certain companies are
approved to provide both the certificate and the course, and it is easier if you
use a company that is authorized to do both since you only have to pay one
time to do this. Click here for a list of companies that provide both services
for Southern District of Indiana (of those on the list, it is also easier if you use
an agency that provides both services online). Click here for a complete list
of providers of both services in the country.
If the attorney recommends bankruptcy, then the attorney will explain the
various chapters of bankruptcy that are available and which chapter he or
she believes best suits the individual’s situation. Chapter 7 is generally over
in about three to four months, and Chapter 13 usually lasts 36 to 60 months,
during which time the person who filed bankruptcy makes monthly payments
to the bankruptcy court to pay back a portion of his or her debt, depending
on what he or she can afford to repay (see the “Chapter 7 vs. Chapter 13”
link for more detail).
The attorney will also discuss which debts are “dischargeable” and which
debts are “nondischargeable” by the bankruptcy case. In other words, not all
debts may be discharged by bankruptcy, and some chapters of bankruptcy
discharge certain types of debts that other chapters will not discharge.
Generally speaking, debts which bankruptcy normally will not discharge are
taxes that are less than three years old, student loans, back child support,
alimony, injuries or damages caused by an accident in which alcohol or drugs
were involved, criminal restitution, and certain other specifically defined types
of debt. Bankruptcy generally will discharge virtually every other kind of
debt, including credit cards, medical bills, utility bills, loans, etc.
Finally, the attorney will discuss the “exemptions” which apply to the
individual’s bankruptcy case. An “exemption” is a certain dollar value worth
of real estate and personal property that a person who files bankruptcy may
retain. All real estate and personal property which is “exempt” may be
retained by the person filing bankruptcy, but all property which is not exempt
may be sold by the bankruptcy court, with the proceeds of the sale being
given to the creditors. Each State determines how much property a person
may retain when filing bankruptcy, so how much real estate and personal
property one may retain depends on the law of the particular State in which
the person resides.
Questions one should remember to ask during a consultation include (1) Are
there any non-bankruptcy alternatives available? (2) What will happen to
one’s property, including real estate and personal property, if one files
bankruptcy? (3) Is it best to file alone or with one’s spouse (if married)? (4)
How much will the bankruptcy cost and what other fees may apply? (5) What
debts will be discharged and what debts will still have to be paid when the
bankruptcy is over? (6) What will happen to one’s credit rating as a result of
the bankruptcy filing?
If one decides to file bankruptcy, he or she will then provide information to
the attorney regarding all of his or her assets, debts, income, and expenses
(among other things). The attorney will prepare the paperwork for the
person’s review, which the individual will then sign. One should be sure to
review all of the paperwork carefully, and ask any questions that one may
have regarding the information contained in the paperwork. Thoroughness
and accuracy are both very important.
A person who files bankruptcy is referred to by the Bankruptcy Code as the
“debtor,” and the persons and businesses to whom the debtor owes money,
goods or services are the “creditors.” The debtor initiates his or her
bankruptcy proceeding by filing a “bankruptcy petition,” also called a
“voluntary petition,” with the United States Bankruptcy Court that presides
over the district in which the debtor resides. The bankruptcy petition is the
document one signs in the attorney’s office.
Once the bankruptcy petition is filed, the bankruptcy court assigns a unique
Bankruptcy Case Number to the bankruptcy petition and will appoint a
“bankruptcy trustee,” also called simply a “trustee,” to oversee the debtor’s
case. The job of the trustee is to ensure that both the debtor and the
creditors are treated fairly, and if the trustee feels that some inequity is
taking place or that the Bankruptcy Code is not being followed by either the
debtor or a creditor, the trustee may refer these issues to the bankruptcy
judge for resolution.
Immediately upon filing the bankruptcy petition, the debtor is protected by the
“automatic stay” in most cases, which simply means that creditors are
automatically ordered by the bankruptcy court to stop all collection attempts
against the debtor. This means that creditors cannot call or bill the debtor,
or even repossess a car or foreclose on a home, once the bankruptcy
petition is filed unless those creditors first get permission from the bankruptcy
court to do so. If creditors do call, bill, or otherwise continue to harass the
debtor after the petition is filed, debtors are generally advised to provide
their Bankruptcy Case Number to the creditor and ask the creditor to call the
debtor’s attorney for verification. The bankruptcy filing generally stops
garnishments, lawsuits, foreclosures, and writs of attachment as well. In
some cases, the automatic stay may only remain in effect for 30 days, or not
go into effect at all, if the debtor has filed previous bankruptcy cases recently
(see your attorney for details).
The Bankruptcy Code requires every debtor to attend a brief hearing
regarding his or her bankruptcy case, and this hearing is called the “First
Meeting of Creditors” or the “341 Hearing” (since section 341 of the
Bankruptcy Code is the section which requires that this hearing be held). A
week or so after the bankruptcy petition is filed with the bankruptcy court, the
debtor will receive a letter from the bankruptcy court advising the debtor of
the date, time, and location of the debtor’s First Meeting of Creditors. The
hearing date is generally around five weeks after the date on which the
bankruptcy petition was filed. The location of your hearing depends on the
County in which you reside. Click here to see which Court you will go to
based on the County in which you live.
It should be noted that the name “First Meeting of Creditors” is misleading for
a couple of reasons: First, there is no “Second” Meeting of Creditors, and the
First Meeting of Creditors is generally the only hearing that takes place in the
typical bankruptcy case (though there are in some cases a second or third
hearing, and one should discuss this possibility with his or her attorney), and
secondly, this hearing is hardly a “meeting of creditors” since creditors
usually do not even attend at all. Typically, the hearing is comprised only of
the trustee, the debtor, and the debtor’s attorney. Creditors have the right to
appear at the hearing and ask the debtor questions if they wish, but they
seldom do.
After the hearing is over, in a Chapter 7 case the debtor will normally receive
an “Order of Discharge” in the mail about 60 to 70 days after the date of the
hearing, which is the bankruptcy court’s order that the Chapter 7 debtor’s
dischargeable debts are officially discharged. Upon receiving this Order of
Discharge, the Chapter 7 bankruptcy case is over. In a Chapter 13 case,
after the hearing the Chapter 13 debtor will normally receive an “Order of
Confirmation” in the mail about 30 to 60 days after the date of the hearing,
which is the bankruptcy court’s order approving the debtor’s Chapter 13 Plan
(see the “Chapter 7 vs. Chapter 13” link for more details). Once the Chapter
13 debtor makes all of the monthly payments required by the Chapter 13
Plan (which takes 36 to 60 months), the Chapter 13 debtor will receive an
Order of Discharge in the mail, at which time the Chapter 13 bankruptcy case
is over.
Each person who files bankruptcy must also attend a financial management
class (probably about 2 hours long) before receiving their discharge. Courts
will probably offer these classes right after the hearing for the convenience of
debtors.
Chapter 7 is on one’s credit report for ten years, and Chapter 13 is on one’s
credit report for seven years. Bankruptcy typically reduces one's credit
rating by 75 to 150 points, depending on the case. Bankruptcy will
realistically affect one’s ability to get credit for twelve to thirty-six months,
depending on the type of credit the debtor is seeking to acquire and the
particular lender’s policies from whom the debtor is seeking the credit. Some
books on credit repair can be found here.
Copyright © 1997 to 2008 by Joseph A. Ross. All rights reserved.
This website is designed to provide general information only. The
information presented in this site should not be construed to be formal legal
advice nor the formation of an attorney-client relationship. Persons
accessing this website are encouraged to seek independent legal counsel
for guidance regarding their individual circumstances.
become unable to pay its bills may have those debts canceled, or
“discharged,” thereby relieving the individual or business from having to pay
those debts. The purpose of bankruptcy is to allow one who has suffered
financial hardship to receive a fresh start.
Bankruptcy law is federal law and is thus drafted by Congress in accordance
with Article I, Section 8 of the United States Constitution, which authorizes
Congress to enact “uniform Laws on the subject of Bankruptcies....” Title 11
of the United States Code is where Congress wrote the bulk of the law
regarding bankruptcy, and therefore Title 11 is commonly referred to as “the
Bankruptcy Code.”
The Bankruptcy Code currently provides five different chapters under which
a person or business may file a bankruptcy proceeding: Chapters 7, 9, 11,
12, and 13.
Chapter 7 is available to individuals and to corporations, and is commonly
known as “total bankruptcy” or “liquidation.” This is the most commonly filed
chapter of bankruptcy, and it is discussed in greater detail in the “Chapter 7
vs. Chapter 13” link.
Chapter 9 is available only to municipalities, and is therefore an extremely
rare form of bankruptcy.
Chapter 11 is utilized principally by businesses, and is often referred to as
“business reorganization.” It is generally rather expensive and is usually only
filed by sizable companies.
Chapter 12 is available only to farmers. This is a reorganization chapter
similar to Chapter 13, but is only available to persons who derive around
80% or more of their income from farming.
Chapter 13 is available to individuals and sole proprietorship businesses, but
not to corporations or partnerships. This chapter is commonly known as a
“wage earner plan” or “individual reorganization.” This is the second most
common form of bankruptcy, and is discussed in greater detail in the
“Chapter 7 vs. Chapter 13” link.
The first step one generally takes in filing for bankruptcy is to contact a
bankruptcy attorney and set up a consultation. After the consultation, the
attorney will advise the person to either file a bankruptcy or pursue some
other course of action, as circumstances dictate. If one does opt to file
bankruptcy, that person must consult with an approved credit counseling
agency either on the internet, by telephone, or in person for approximately
one hour and obtain a certificate from that agency. This certificate is good
for 180 days and must be obtained before the bankruptcy case is filed. Also,
the person seeking to file bankruptcy has to complete a two hour online
course prior to their case becoming final. Only certain companies are
approved to provide both the certificate and the course, and it is easier if you
use a company that is authorized to do both since you only have to pay one
time to do this. Click here for a list of companies that provide both services
for Southern District of Indiana (of those on the list, it is also easier if you use
an agency that provides both services online). Click here for a complete list
of providers of both services in the country.
If the attorney recommends bankruptcy, then the attorney will explain the
various chapters of bankruptcy that are available and which chapter he or
she believes best suits the individual’s situation. Chapter 7 is generally over
in about three to four months, and Chapter 13 usually lasts 36 to 60 months,
during which time the person who filed bankruptcy makes monthly payments
to the bankruptcy court to pay back a portion of his or her debt, depending
on what he or she can afford to repay (see the “Chapter 7 vs. Chapter 13”
link for more detail).
The attorney will also discuss which debts are “dischargeable” and which
debts are “nondischargeable” by the bankruptcy case. In other words, not all
debts may be discharged by bankruptcy, and some chapters of bankruptcy
discharge certain types of debts that other chapters will not discharge.
Generally speaking, debts which bankruptcy normally will not discharge are
taxes that are less than three years old, student loans, back child support,
alimony, injuries or damages caused by an accident in which alcohol or drugs
were involved, criminal restitution, and certain other specifically defined types
of debt. Bankruptcy generally will discharge virtually every other kind of
debt, including credit cards, medical bills, utility bills, loans, etc.
Finally, the attorney will discuss the “exemptions” which apply to the
individual’s bankruptcy case. An “exemption” is a certain dollar value worth
of real estate and personal property that a person who files bankruptcy may
retain. All real estate and personal property which is “exempt” may be
retained by the person filing bankruptcy, but all property which is not exempt
may be sold by the bankruptcy court, with the proceeds of the sale being
given to the creditors. Each State determines how much property a person
may retain when filing bankruptcy, so how much real estate and personal
property one may retain depends on the law of the particular State in which
the person resides.
Questions one should remember to ask during a consultation include (1) Are
there any non-bankruptcy alternatives available? (2) What will happen to
one’s property, including real estate and personal property, if one files
bankruptcy? (3) Is it best to file alone or with one’s spouse (if married)? (4)
How much will the bankruptcy cost and what other fees may apply? (5) What
debts will be discharged and what debts will still have to be paid when the
bankruptcy is over? (6) What will happen to one’s credit rating as a result of
the bankruptcy filing?
If one decides to file bankruptcy, he or she will then provide information to
the attorney regarding all of his or her assets, debts, income, and expenses
(among other things). The attorney will prepare the paperwork for the
person’s review, which the individual will then sign. One should be sure to
review all of the paperwork carefully, and ask any questions that one may
have regarding the information contained in the paperwork. Thoroughness
and accuracy are both very important.
A person who files bankruptcy is referred to by the Bankruptcy Code as the
“debtor,” and the persons and businesses to whom the debtor owes money,
goods or services are the “creditors.” The debtor initiates his or her
bankruptcy proceeding by filing a “bankruptcy petition,” also called a
“voluntary petition,” with the United States Bankruptcy Court that presides
over the district in which the debtor resides. The bankruptcy petition is the
document one signs in the attorney’s office.
Once the bankruptcy petition is filed, the bankruptcy court assigns a unique
Bankruptcy Case Number to the bankruptcy petition and will appoint a
“bankruptcy trustee,” also called simply a “trustee,” to oversee the debtor’s
case. The job of the trustee is to ensure that both the debtor and the
creditors are treated fairly, and if the trustee feels that some inequity is
taking place or that the Bankruptcy Code is not being followed by either the
debtor or a creditor, the trustee may refer these issues to the bankruptcy
judge for resolution.
Immediately upon filing the bankruptcy petition, the debtor is protected by the
“automatic stay” in most cases, which simply means that creditors are
automatically ordered by the bankruptcy court to stop all collection attempts
against the debtor. This means that creditors cannot call or bill the debtor,
or even repossess a car or foreclose on a home, once the bankruptcy
petition is filed unless those creditors first get permission from the bankruptcy
court to do so. If creditors do call, bill, or otherwise continue to harass the
debtor after the petition is filed, debtors are generally advised to provide
their Bankruptcy Case Number to the creditor and ask the creditor to call the
debtor’s attorney for verification. The bankruptcy filing generally stops
garnishments, lawsuits, foreclosures, and writs of attachment as well. In
some cases, the automatic stay may only remain in effect for 30 days, or not
go into effect at all, if the debtor has filed previous bankruptcy cases recently
(see your attorney for details).
The Bankruptcy Code requires every debtor to attend a brief hearing
regarding his or her bankruptcy case, and this hearing is called the “First
Meeting of Creditors” or the “341 Hearing” (since section 341 of the
Bankruptcy Code is the section which requires that this hearing be held). A
week or so after the bankruptcy petition is filed with the bankruptcy court, the
debtor will receive a letter from the bankruptcy court advising the debtor of
the date, time, and location of the debtor’s First Meeting of Creditors. The
hearing date is generally around five weeks after the date on which the
bankruptcy petition was filed. The location of your hearing depends on the
County in which you reside. Click here to see which Court you will go to
based on the County in which you live.
It should be noted that the name “First Meeting of Creditors” is misleading for
a couple of reasons: First, there is no “Second” Meeting of Creditors, and the
First Meeting of Creditors is generally the only hearing that takes place in the
typical bankruptcy case (though there are in some cases a second or third
hearing, and one should discuss this possibility with his or her attorney), and
secondly, this hearing is hardly a “meeting of creditors” since creditors
usually do not even attend at all. Typically, the hearing is comprised only of
the trustee, the debtor, and the debtor’s attorney. Creditors have the right to
appear at the hearing and ask the debtor questions if they wish, but they
seldom do.
After the hearing is over, in a Chapter 7 case the debtor will normally receive
an “Order of Discharge” in the mail about 60 to 70 days after the date of the
hearing, which is the bankruptcy court’s order that the Chapter 7 debtor’s
dischargeable debts are officially discharged. Upon receiving this Order of
Discharge, the Chapter 7 bankruptcy case is over. In a Chapter 13 case,
after the hearing the Chapter 13 debtor will normally receive an “Order of
Confirmation” in the mail about 30 to 60 days after the date of the hearing,
which is the bankruptcy court’s order approving the debtor’s Chapter 13 Plan
(see the “Chapter 7 vs. Chapter 13” link for more details). Once the Chapter
13 debtor makes all of the monthly payments required by the Chapter 13
Plan (which takes 36 to 60 months), the Chapter 13 debtor will receive an
Order of Discharge in the mail, at which time the Chapter 13 bankruptcy case
is over.
Each person who files bankruptcy must also attend a financial management
class (probably about 2 hours long) before receiving their discharge. Courts
will probably offer these classes right after the hearing for the convenience of
debtors.
Chapter 7 is on one’s credit report for ten years, and Chapter 13 is on one’s
credit report for seven years. Bankruptcy typically reduces one's credit
rating by 75 to 150 points, depending on the case. Bankruptcy will
realistically affect one’s ability to get credit for twelve to thirty-six months,
depending on the type of credit the debtor is seeking to acquire and the
particular lender’s policies from whom the debtor is seeking the credit. Some
books on credit repair can be found here.
Copyright © 1997 to 2008 by Joseph A. Ross. All rights reserved.
This website is designed to provide general information only. The
information presented in this site should not be construed to be formal legal
advice nor the formation of an attorney-client relationship. Persons
accessing this website are encouraged to seek independent legal counsel
for guidance regarding their individual circumstances.
| Advertising Material |
We are a debt relief agency. We
help people file for bankruptcy
relief under the Bankruptcy
code. The services and/or
benefits we provide are with
respect to Title 11 of the United
States Code.
help people file for bankruptcy
relief under the Bankruptcy
code. The services and/or
benefits we provide are with
respect to Title 11 of the United
States Code.
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