Things to Know Before Filing Bankruptcy
If you’re not sure about the proper way to file bankruptcy, you are not the only one out there. The most important recent development to know about is the Bankruptcy Abuse Prevention and Consumer Protection Act that was passed by Congress in 2005. BAPCPA has made it much more difficult to file bankruptcy, and has made the decision to do so much harder.
Before beginning the process, you should probably find a reputable bankruptcy lawyer who can assist in the proceedings. It is not illegal to represent yourself of course, but a lawyer is the only one who can truly represent you in the best way. BAPCPA has made bankruptcy so complex that it is possible that your bankruptcy declaration will not be accepted by the court because it is incomplete or incorrect.
When filing bankruptcy, you must first determine which class of bankruptcy is appropriate for your situation. The 6 different classifications of bankruptcy are Chapters 7, 9, 11, 12, 13 and 15. Chapters seven and thirteen are used solely for private citizens, and the remaining classifications are used by public or private firms and farmers.
Chapter Seven is often referred to as “liquidation” because bankruptcy filers are forced to sell their assets and possessions to pay of their debts. Certain delinquincies are exempt from being discharged in Chapter Seven including tax responsibilities, money owed in judgements from the courts, and loans from the government, including student loans.
The Chapter 13 classification is called “reorganization” and also forces the filers to repay their debts. Instead of liquidation, debtors and creditors agree upon a payment plan to cover the debt. The repayment periods usually last between three and five years, but can be longer or shorter.
BAPCPA forces bankruptcy filers to agree to a ‘means’ test; a financial assessment that is used to gauge the debtor’s median income. This test compares an individuals income to the state’s average income in an attempt to assess the fair amount that the individual must repay.
The bankruptcy filer must apportion most of their disposable income to repaying their debts under Chapter 13. While still under the terms of the plan, a debtor usually cannot assume any more debt unless previously approved. Many debtor’s under Chapter 13 are simply unable to meet their responsilities and then they must return to court to meet with the judge.
When bankruptcy filers fail to meet their bankruptcy requirements because they do not stick to the repayment plan, creditors go to the court and petition the judge to toss out the Chapter 13 petition. When the judge does this, he can decide to reclassify the bankruptcy as having Chapter 7 status or dismiss the petition completely. When bankruptcy petition gets dismissed, the bankruptcy filers lose the protection that bankruptcy affords them and the creditors will then begin collection actions, which sometimes includes foreclosure.
Once bankruptcy papers have been filled out, they must be filed at the courthouse. At this point, within a few weeks, the debtor’s find themselves in a 321 Bankruptcy Meeting. At this time, creditors are permitted to question the bankruptcy about the reason that they must file for bankruptcy, as well as their plan to get their heads above water and for repaying their debts.
Creditors do not always go to the 321 Bankruptcy Meeting, but they must do so if they want their notes to be put into the bankruptcy repayment plan. They petition must be filed at the courthouse within thirty days of the 321 Meeting.
The final part of the bankruptcy procedure involves appearing before the bankruptcy judge. The judge reads the filing to make sure that all necessary conditions for bankruptcy have been fulfilled, including enrollment in “credit therapy”. Then the judge will do one of three things: absolve debts by way of Chapter 7; sign-off on the Chapter 13 repayment; or toss out the entire bankruptcy petition.
This article is written for the United States readers. You are advised to seek legal counsel for the accuracy of the content herein as laws may have changed.
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