Bankruptcy: What is the Process?

For some people, filing a personal bankruptcy can provide the opportunity for them to reset their finances and give them hope for the future. It can provide a new chapter free from the debts that many times accrue through no fault of the debtor. A bankrptcy doesn’t mean a person is irresponsible; many times, unintended debts can pile up leaving few options. Medical emergencies, natural disasters with not enough insurance, and unforeseen home or car repairs are just a few of the ways unintended debts can pile up.

If you are interested in learning more about the ins and out of declaring bankruptcy, here is a quick primer on what you can expect during this process according to the United States Courts:

he procedures for the bankruptcy process are administered by the Federal Rules of Bankruptcy Procedure (often called the “Bankruptcy Rules”) and local rules of each bankruptcy court. The Bankruptcy Rules contain a set of official forms for use in bankruptcy cases. The Bankruptcy Code and Bankruptcy Rules (and local rules) set forth the formal legal procedures for dealing with the debt problems of individuals and businesses.

There is a bankruptcy court for each judicial district in the country. Each state has one or more districts (Florida has three: Northern, Middle and Southern). In all there are 90 bankruptcy districts across the country. The bankruptcy courts generally have their own clerk’s offices.

The court official with decision-making power over federal bankruptcy cases is the United States bankruptcy judge. The bankruptcy judge may decide any matter connected with a bankruptcy case, like the eligibility to file or whether a debtor will receive a discharge of debts. Much of the bankruptcy process is administrative, however, and is conducted away from the courthouse. In cases under chapters 7, 12, or 13, and sometimes in chapter 11 cases, this administrative process is carried out by a trustee who is appointed to oversee the case.

A debtor usually has very little interaction with the bankruptcy judge. In a chapter 7 filing, the only time the debtor will see the judge is if an objection is raised. In a chapter 13 the debtor will only need to appear before the judge to confirm the repayment plan. The only formal proceeding a chapter 13 debtor will need to be at, other than the confirmation hearing, is a meeting with representatives of the debtor’s creditors, known as a “341 meeting” because section 341 of the Bankruptcy Code requires that the debtor attend to allow creditors to question the debtor about debts and property.

Two Types of Bankruptcy

The two most common types of personal bankruptcies that a person can file are chapter 7 and chapter 13. There are some differences between the two.

With a Chapter 7 bankruptcy, your assets are sold to pay your creditors. A trustee is appointed to reduce many of the debtor’s assets into cash which is then used to pay off creditors. The debtor does have a right to certain exemptions, but those exemptions are very limited.

In a Chapter 13 bankruptcy, you are able to negotiate with each of your creditors to arrive at terms that satisfy your debt without you having to sell your assets.

The primary exemption in Florida for both chapter 7 and 13 is the Homestead exemption which protects a home you own in the state.

Social Security benefits, pension plans, retirement accounts, disability benefits, veteran’s benefits, unemployment benefits, alimony, child support and similar benefits are completely exempt since they are needed to support the debtor and their dependents. Also, if the debtor is the head of the household take home pay of $750 is exempt. Income considered disposable above $750 cannot be garnished without written consent of the debtor.

The majority of personal bankruptcies fall under Chapter 7, because it is less expensive to file and typically results in a much faster approval. In contrast, Chapter 13 bankruptcies require creditor approval, which is often delayed due to contentious negotiations between you and the people you owe.

The process described in this article is geared toward filing Chapter 7 bankruptcy, although there are some similarities if you were to file Chapter 13 bankruptcy.

The Bankruptcy Process

According to the United States Courts website, there were 800,000 cases filed in the year 2016 in the U.S. Bankruptcy in Florida, which makes it a very busy place. In January of 2018, the bankruptcy court in Orlando had 1203 Chapter 7, 26 Chapter 11 and 529 Chapter 13 cases for a total of 1758.

While some people will still hesitate at choosing bankruptcy as an option, the fact remains that this is still a popular financial decision. A chapter 7 case is faster, 3-6 months, the chapter 13 can take as long as 3-5 years to allow time for debts to be paid off.

In order to file for Chapter 7 bankruptcy, you must first meet what is known as a “means test”. This test analyzes your income, expenses and debts to ascertain whether you are in the position to actually pay off your debts within a reasonable time; many people choose an online means test. Keep in mind that that some debtors (disabled veterans, military reservists) are not required to pass a means test.

If you fail the means test, you may be required to file chapter 13 bankruptcy instead of chapter 7.

Once you pass the means test, the steps in the Chapter 7 bankruptcy process are:

  • Obtain credit counseling – six months before you file for Chapter 7, the law requires that you receive credit counseling from an agency approved by the U.S. Trustee’s Office. You can obtain agency names on the Trustee Office’s website.
  • File your documents – you must then file your bankruptcy petition by filling out a number of forms that show your income, expenses, liabilities and property exemptions. After this step is completed, your are usually granted a stay against your creditors taking action against you until the bankruptcy case is approved or denied.
  • A trustee of the court reviews your paperwork and takes ownership of any property that is eligible to be sold to pay off your debts.
  • Meet your creditors – you must meet all your creditors, at which point they will ask you questions about your financial status under oath.
  • The court makes a decision on whether or not your bankruptcy filing is approved.
  • You must take a debtor’s education course – this provides you with the knowledge to prevent another financial mishap, such as the one that led to your bankruptcy.
  • Within three to six months, you will receive notice that your bankruptcy has been discharged.
  • Several weeks later, the court will close your case and the process is complete.

When you file a Chapter 13 bankruptcy petition, an automatic stay will go into effect. This is essentially a shield between you and each of your creditors. During the Chapter 13 filing, creditors are prohibited from the continuation or commencement of the judicial proceeding against you and any collection efforts. The Chapter 13 bankruptcy filing will also stop foreclosure, so you have the ability to catch up on your mortgage payments.

The central part of a chapter 13 is the repayment plan that will take anywhere from 36-60 months to complete.

Get Legal Help

Filing for bankruptcy is complex and tedious, and one small mistake can cause a delay of several months. Trust an experienced bankruptcy lawyer to make sure it’s done right. To ensure that the process is handled correctly, contact the Badgley Law Group, an affordable Orlando Bankruptcy Lawyer at 407-781-0420 for a free consultation.

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