How It Works: Your Bankruptcy In a Nutshell
The chart below is a simplified version of the bankruptcy process. As you can see, the option to file a chapter 7 bankruptcy rather than a chapter 13 bankruptcy is based on the means test, an addition to the bankruptcy code introduced with the Bankruptcy Abuse Prevention and Consumer Protection Act. The act was introduced by congress in 2005.
The Act created requirements for credit counseling and more paperwork requirements for you and your attorney. But the truth is, most people who qualified for bankruptcy relief before the law change, still do. If you’re burdened by financial problems and unable to pay your debts, bankruptcy may be an option to give you and your family a financial fresh start.
Throughout the process of your bankruptcy, you’ll encounter the following individuals, each of whom have an important role to play in your case:
Your bankruptcy attorney is your ally and representative throughout the entire process. He or she will guide you through the bankruptcy, advise you, answer your questions, and represent you at any required court appearances.
A Credit Counseling Agency
You will be required to complete a pre-bankruptcy counseling session and a post-bankruptcy educational session with a federally approved credit agency. Many agencies offer the classes, which can be taken online, by phone, or in person. There is a charge for the classes.
The Bankruptcy Trustee
When your case is filed, a trustee is appointed by the bankruptcy court to oversee your case. The trustee’s job is to review your case, as well as your creditors’ claims against you. The trustee will ensure that your creditors receive what you can reasonably pay toward your debts. You will appear with your attorney before the trustee in your case during the 341(a) meeting of creditors. If you file a Chapter 13 bankruptcy, you will direct your payments to the trustee, who will distribute the money to your creditors and provide you and your attorney with a regular accounting statement to show where the money went.
What happens with your creditors will depend in part on whether the debts you owe are secured (collateralized with real property, like a car or home loan) or unsecured (like most medical or credit card debts.) Immediately after you file, an automatic stay goes into effect. The automatic stay will stop your creditors from attempting to collect the debt you owe, which means that they are no longer allowed to call you, garnish your paycheck, or mail bills, letters or statements to you to attempt to collect the money they are owed. If your creditors continue to contact you after your case is filed, you should refer them to your attorney.
In regards to secured debts, you may be asked to either reaffirm (agree to continue paying on the debt secured by the property you wish to keep,) or surrender the property to the creditor. Your attorney will discuss these options with you.
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