A common question when an ordinary person files for bankruptcy relief is “What happens?”. Within a week of filing a chapter 7 or chapter 13 bankruptcy, the bankruptcy court clerk send out notices of the bankruptcy to all of a person’s creditors using a list that the person supplies. This notice contains instructions that all debt collection activities are to immediately cease, which means that creditors and collectors can no longer call you and if they are garnishing wages, the garnishment must stop. This stop order is called a bankruptcy “stay”, and it goes into effect the moment the bankruptcy paperwork is filed with the bankruptcy court. This stay also stops repossession and foreclosure.
In approximately one month after the bankruptcy is filed, the person must attend a “Meeting of Creditors”, which is a hearing conducted by a bankruptcy trustee. The trustee is not a judge, but is a private person who is appointed by a special sub agency of the US Department of Justice called the Office of the United States Trustee. Usually this trustee is an attorney who resides in the same geographic area as the person who is filing bankruptcy. At the meeting of creditors, the trustee asks questions of the person who is under oath. Although it is called a meeting of creditors, often there are no creditors present. The trustee asks whether the filer has included all assets and all debts, and whether all questions in the bankruptcy paperwork have been answered truthfully. The trustee uses this meeting as a way to gain knowledge of whether there exist any assets that the trustee can obtain to pay creditors (chapter 7), or whether the chapter 13 plan follows the legal requirements for partial repayment of debts.
The meeting of creditors does not end the bankruptcy. In a chapter 7 case, it is normally two more months until the filer receives the bankruptcy discharge – the injunction that prohibits the future collection of debts. During that two months, the trustee may identify assets that can be liquidated to pay debts, or the trustee may decide that no assets of the filer can be taken. If the trustee does take an asset and sell it to pay creditors, the debtor still receives the discharge, but the case may remain open while the trustee collets money and pays creditors.
In a chapter 13 case, the debtor makes monthly payments to a chapter 13 trustee who then distributes those payments to creditors. The chapter 13 bankruptcy filer makes monthly payments beginning within 30 days after the bankruptcy paperwork is filed. After the meeting of creditors, the chapter 13 Plan of Reorganization is presented to the bankruptcy judge, who either confirms the plan and orders it to be a binding upon all creditors. If there is an objection or legal problem with the plan, the judge can deny confirmation of the plan and the debtor must submit a new plan or the case will be dismissed. Once a plan is confirmed, the filer makes monthly payments to the trustee for a period of between 36 and 60 months. At the end of the chapter 13 plan after the filer makes all payments, they receive a discharge of debts.
The key to a successful bankruptcy is knowing what is going to happen after you file a bankruptcy, so that there are no surprises and the filer can obtain a fresh start. At Nicolet Law Office, we do our homework so that our clients are prepared and there are no surprises.