Bankruptcy is a process. One major milestone in that process is filing your bankruptcy petition. But what happens when you file a bankruptcy petition?
In both Chapter 7 and Chapter 13 bankruptcy, filing a bankruptcy petition triggers a number of deadlines, meetings and conditions that will affect the rest of your bankruptcy process. It’s important to know what to expect so you aren’t caught off guard. That is what we discuss in this post.
For more information on what happens after a bankruptcy petition, see below. And for personalized bankruptcy guidance, reach out to the team at A Bankruptcy Law Firm, LLC.
Types of Bankruptcy Petitions
When you file a bankruptcy petition, you will file one of four types of petitions. The four types are listed below:
- Voluntary Petition for Individuals Filing for Bankruptcy
- Voluntary Petition for Non-Individuals Filing for Bankruptcy
- Involuntary Petition Against an Individual
- Involuntary Petition Against a Non-Individual
Unless you are a creditor seeking to force an individual or business into bankruptcy, the first two types will be the only bankruptcy petitions that may be applicable to your case.
The most common petition is the Voluntary Petition for Individuals Filing for Bankruptcy. You use this petition if you are an individual seeking to file bankruptcy. The second petition, the Voluntary Petition for Non-Individuals Filing for Bankruptcy, is for businesses that would like to file bankruptcy.
What Goes Into a Bankruptcy Petition?
Bankruptcy petitions require a lot of information, but some of the key pieces you will need to include in your petition are as follows:
- Your name and address
- The type of bankruptcy you are filing
- The estimated value of your assets, amount of your debt and number of creditors you have
- Information about assets you can’t keep after the bankruptcy (nonexempt assets)
- Information about any pending evictions or related bankruptcies
This is just a small sample of the types of information you will need to include in your bankruptcy petition. Your bankruptcy lawyer can walk you through all of the information you need to include.
What Happens When You File a Chapter 7 Bankruptcy Petition?
Chapter 7 bankruptcy is the most common type of bankruptcy. Usually, when you think of bankruptcy, this is what you’re picturing. In Chapter 7 bankruptcy, most of your property and assets are sold, and the proceeds of those sales are distributed to your creditors. The entire Chapter 7 bankruptcy process usually lasts around four months.
Below, we take a step-by-step look at what happens after you file a Chapter 7 bankruptcy petition:
Chapter 7 Automatic Stay
The second your Chapter 7 petition is filed, an automatic stay is triggered. The automatic stay is the first point in the bankruptcy process that allows you a little breathing room. By law, the automatic stay prevents your creditors from pursuing any payments from you. That means creditors can no longer send you collections notices, try to sue you, call you or try in any other way to collect any money you owe.
Your Credit Score Takes a Hit
Pretty quickly after you file for Chapter 7 bankruptcy, your credit score will drop. For many people, this is a difficult realization. However, if you are already far behind on payments, your credit score is likely to already be lower. Filing for bankruptcy damages your credit score, but it also begins to set up a path for you to become financially healthy again, which will ultimately improve your credit score.
Notice of Bankruptcy Case Filing
After the court receives your Chapter 7 bankruptcy petition, a clerk will issue a notice to all of your creditors to let them know that you have filed and what chapter you are filing. This notice usually reaches creditors within 10 days of you filing the petition.
Chapter 7 Meeting of Creditors
Anywhere from 21 to 40 days after you file your bankruptcy petition, the trustee assigned to your case will hold a meeting of your creditors. You must attend this meeting, and if you have filed jointly with your spouse, your spouse must attend, too.
At the meeting, also known as a 341 hearing, the trustee and your creditors will ask questions about your assets and finances. Creditors are not required to attend the meeting, and it’s often the case that they do not attend.
Working with the Chapter 7 Trustee
After the meeting of creditors, you will need to work with the trustee assigned to your case in determining which of your assets will be liquidated to repay your creditors and which will be exempt. The trustee will likely ask you to provide copies of various financial documents during this part of the process.
During the creditor meeting and after, your creditors will be able to file objections to try to prevent you from discharging certain debts. This is a part of the process where a bankruptcy lawyer can be particularly helpful because they can negotiate with the creditors and trustee to make sure you are treated fairly.
Financial Management Course
Before you can officially have your debts discharged in Chapter 7 bankruptcy, you will have to complete a financial management course and show proof that you did so.
Once the trustee has collected your nonexempt property and assets, they will convert them into cash and distribute it among your creditors. At that point, your eligible debts are discharged. Typically, you will be notified by mail that your debts have been discharged and the bankruptcy process is complete.
What Happens When You File a Chapter 13 Bankruptcy Petition?
Chapter 13 bankruptcy allows you to create a three- to five-year plan to pay back some of your debts. After successful completion of the plan, the remainder of your qualifying debts is discharged.
In many ways, what happens after filing a Chapter 13 bankruptcy petition is similar to what happens after filing a Chapter 7 petition. However, there are some key differences, which we have outlined below.
Chapter 13 Automatic Stay
Like Chapter 7 bankruptcy, Chapter 13 bankruptcy calls for an automatic stay the moment you file your petition. This means creditors are no longer allowed to pursue payments from you.
A few days after you file your Chapter 13 petition, the court appoints a trustee who will oversee your case.
Chapter 13 Affects Your Credit Score
Not long after you file your Chapter 13 bankruptcy petition, your credit score will likely decrease. This is a common effect of filing for bankruptcy, but because bankruptcy is all about repairing your finances, your credit score should begin to improve if you take the right financial steps after bankruptcy.
Notice of Chapter 13 Filing
The court will send all of your creditors an official notice stating that you filed for Chapter 13 bankruptcy a few days after you file. This notice will contain key information, such as the date by which your creditors will have to file objections, the date of the creditor meeting and when the confirmation hearing is set to occur.
Creditors File Objections to Your Repayment Plan
Up until at least 25 days before the confirmation hearing, your creditors are allowed to file objections to your repayment plan. These objections are usually meant to get the individual creditor more money in your plan.
Working with the Chapter 13 Trustee
The Chapter 13 trustee will collect relevant financial information like tax returns and similar documents until a week before the meeting of creditors. You are obligated to cooperate with the trustee and provide these documents.
Repayment Plan Payments Begin
Even before your repayment plan is approved, you need to start making the payments outlined in your repayment plan. These payments should begin within a month after you file your Chapter 13 bankruptcy petition.
Chapter 13 Meeting of Creditors
The meeting of creditors in a Chapter 13 bankruptcy is highly similar to the meeting of creditors in a Chapter 7 bankruptcy. Many creditors will likely not show up, but the trustee and those creditors who do come will be allowed to ask you questions about your financial situation and your repayment plan. This meeting happens at some point within the first 40 days after your petition is filed.
Chapter 13 Confirmation Hearing
Anywhere from 20 to 45 days after the meeting of creditors, you must attend a confirmation hearing. At this hearing, the court will examine your repayment plan and any objections from the trustee or creditors to decide whether to approve it.
Financial Management Course
If your plan is approved, you must stick to the payments for the three to five years the plan calls for. But there’s one more step you have to complete before your debts can be discharged: You have to take a financial management course and file a certificate that proves you completed it.
Either at a court appearance or through the mail, the court will formally discharge your debts and your Chapter 13 bankruptcy will be complete.
Filing a Bankruptcy Petition? A Bankruptcy Law Firm, LLC, Can Help
Whether you are filing Chapter 7, Chapter 13 or any other type of bankruptcy, understanding what to expect after you file a bankruptcy petition is essential to your ability to get through this process. At A Bankruptcy Law Firm, LLC, our lawyers are committed to helping individuals and businesses successfully navigate bankruptcy so they can get a fresh financial start. We offer free consultations, so you can learn more about bankruptcy and determine whether or not bankruptcy makes sense for you at no cost.