In part 1 of this series, we talked about which debts do and don’t qualify for discharge and some important things to know about your responsibilities. In this article we’re going to talk about common questions related to the process itself, from what the different chapters mean to what happens as your case progresses.
Next up we’ll talk about what happens after bankruptcy, but if you have any questions in the meantime you can always get in touch with us for a free consultation.
How do I start the bankruptcy process?
There are a series of requirements that you must fulfill in order to successfully file a bankruptcy petition. Since this is probably a difficult an emotional time for you, it’s best if you contact your attorney to ensure that you’ve followed the right steps.
In order to qualify for bankruptcy relief, you must take a course from a non-profit credit counseling agency within 180 days before you file your petition. Courses are available online and even via phone, and can usually be completed within a couple of hours. Once you complete the course, you will receive a certificate that you’ll need to file along with other paperwork.
Before meeting with your attorney, you may want to gather some necessary documentation, including tax returns, bank statements, any investment or retirement account statements, credit card bills, and pay stubs (or a profit and loss statement if you are a business owner.) You’ll need to provide several months’ worth of statements and two years of tax returns or P&Ls, so check with your attorney for a full list.
Depending on which chapter you file, you’ll need to complete official documentation, which can be lengthy and complex. This is why having an attorney is so important. He or she can help you choose the appropriate chapter for your situation and guide you through the documentation.
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Should I file Chapter 7 or Chapter 13?
Although there are other chapters, these are the two that are commonly filed by individuals. The chapter that is right for you will depend on your personal situation, taking into account factors such as your type of debt, income, value of your assets, ability to pay back debt and whether or not you plan to keep your house.
Chapter 7 is intended to eliminate credit card debt, personal loans and medical bills quickly, but your property may be taken to pay back some of that debt. If you have a good amount of equity in your house and plan to leave it, Chapter 7 can be a good option. If you want to keep your house, you must be current on mortgage payments and qualify for a property exemption.
Chapter 13 is a better option if you’re behind on your mortgage and intend to stay in your home. Since it is designed as a repayment plan, it can also be beneficial in helping you pay off non-dischargeable debt like child support and past due income taxes. There is, however, a limit to the total debt you can have.
Ultimately, the nuances of bankruptcy law can be complex and the best choice for you depends on many factors that are unique to your situation.
Can I file bankruptcy again if I’ve filed in the past?
You can – but when depends in part on whether your debt was successfully discharged, and which chapter you filed.
If you file Chapter 7, you can file another Chapter 7 eight years from the date of the prior filing, or you can file Chapter 13 after four years. You can file a subsequent Chapter 13 after a prior Chapter 13 in two years, and a subsequent Chapter 7 after a Chapter 13 in six years.
These rules are federally regulated and do not change on a state by state basis. They can be complex, however, so consult your attorney to be sure you understand your options.
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Can I switch from one chapter to another after I file?
If you find yourself in a scenario that is not ideally suited to your interests, you may switch from one bankruptcy chapter to another by filing a motion with the court asking the judge to grant a conversion.
You may choose to switch chapters if you fear losing a property that you had intended to keep or if a creditor intends to file a motion objecting to the discharge of debt.
A judge will typically grant the request but is not likely to grant a second since this can be seen as an attempt to “game the system”. It’s important to understand how switching will affect the discharge and any property exemptions, so as always, consult with your attorney.
Where should I file bankruptcy if I’ve just moved?
If you’ve recently moved out of state, you must reside in your current state for 91 days before you can file bankruptcy there. After 91 days, you can file bankruptcy in the state in which you currently live.
Other rules apply regarding exemptions, especially if you recently bought a new home or have lived in your current state for less than two years, so ask your attorney about how this can affect you.
What happens after I’ve filed?
Once the process is in motion, there are a few more steps to navigate. You’ll be required to take a debtor education course that will teach techniques for setting a budget and rebuilding credit after bankruptcy. As with the pre-filing course, you will receive a certificate that you must provide as proof that you’ve met the requirement and are eligible to receive a discharge of debt.
You will also be required to appear in court at a meeting called the 341 Meeting of Creditors. At that meeting, you will verify your identity and the contents of your petition under oath. Creditors also have the opportunity to ask questions but it is unusual for creditors to appear or to ask questions. Cases are typically straightforward and procedural and should last only a few minutes. Creditors will generally only appear when fraud is suspected.
How long does bankruptcy take?
From the time you file your petition, a Chapter 7 bankruptcy typically takes three months (or 90 days) from start to finish. Your discharge comes exactly 60 days after your 341 hearing, which is typically 30 days after your filing date but can be sooner if the court is slow.
Since Chapter 13 is a repayment program, your case will likely last between three and five years.
The bankruptcy process is designed to ultimately provide you with financial relief from unmanageable debt, but it is not without its complexities. If you have questions about how it works or what you’ll be required to do, contact us for a free consultation.