What is a Bankruptcy Petition, what are the most common types of Bankruptcy and what happens once your case is filed with the Bankruptcy Court?
A Bankruptcy petition is a collection of forms also known as schedules that disclose all of your financial information to the Bankruptcy Court. These forms will list all of your assets (real and personal property), monthly income and expenses and most importantly the liabilities and debts you wish to eliminate.
Your bankruptcy case starts when you file the petition with the clerk of the bankruptcy court.
What Happens Once My Bankruptcy Petition is Filed?
Once your petition is filed with the Bankruptcy Court, the Court will then send all of your creditors a Notice of Bankruptcy Case (Form 309). This Notice among other things will tell your creditors specifically which Chapter you have filed (Chapter 7 or Chapter 13 Bankruptcy). Your creditors usually receive this Notice within 7 to 10 days from your filing.
What is an Automatic Stay?
Don’t fret about the seemingly long time frame though, because the moment you file your Bankruptcy case, an automatic stay goes into effect. The automatic stay stops your creditors immediately and prohibits them from initiating or continuing any collection activities against you. In other words, it stops your creditors in their tracks.
The automatic stay means that a creditor cannot call you, send you collection letters, file a lawsuit, or otherwise attempt to collect its debt from you.
Chapter 7 Bankruptcy
The most common types of Bankruptcy cases for individuals as noted above are Chapter 7 and Chapter 13.
A Chapter 7 or straight Bankruptcy is the simplest and most common type of Bankruptcy that is designed to give debtors a “fresh start” in their financial life. At the end of the process (typically less than 4 months), all qualifying debts are discharged, which means you will never have to pay them.
The first step is to determine if you are eligible to file a Chapter 7 bankruptcy petition by taking a “means test.” Your income must be lower than the median income in your state. If your income is too high, you may not be eligible to file for bankruptcy under Chapter 7.
Chapter 13 Bankruptcy
If you are not eligible, no worries, a Chapter 13, will most likely be available to you. In a Chapter 13 bankruptcy, you will develop a plan to consolidate and reorganize your debt on your terms, not your creditor’s terms.
You can stop the out of control interest on credit cards and personal and payday loans. You can extend the terms on your vehicle loans and other personal property loans all the while lowering your interest rates to make your payments more affordable.
If you are behind on your mortgage and facing foreclosure, you can add your arrears (the amount you are behind) in your repayment plan. There are other types of Bankruptcy cases, but they are designated specifically for corporations (Chapter 11), farmers and fishermen (Chapter 12) and municipalities (Chapter 9).
Meeting of Creditors
Your Bankruptcy petition notice, in addition to notifying your creditors of your bankruptcy, tells your creditors the time and location of your “Meeting of Creditors” also known as the 341 Hearing. As the Debtor in the case, you are of course required to attend this mandatory meeting. The ultimate reason for this meeting is to give the Bankruptcy Trustee and your creditors an opportunity to ask you questions under oath about your assets and financial affairs.
Again, do not fret, because, despite its name, creditors rarely attend the meeting of creditors. They will usually review the Bankruptcy petition you filed with the Court and this typically answers all their potential questions. Unless a creditor believes that you are hiding assets or lying on your bankruptcy petition, they do not have much to gain from attending the 341 meeting.
Let Us Help You Through the Bankruptcy Process
As you can see, bankruptcy laws are very complicated and if you owe any debt of any kind and are wondering how to deal with it, please contact us to schedule an appointment for a free initial consultation.
We can answer all your questions regarding Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, stopping a foreclosure or wage garnishment, avoiding liens, stopping law suits, discharging medical debt, personal loans, payday loans, credit card debt, etc. We can alleviate your stress! We want to help and we can help you!
Grant McNutt is a Managing Attorney at the Bond & Botes Law Offices in Florence and Haleyville, Alabama. He holds a Bachelor of Science from the University of Alabama, and a Juris Doctorate from the Birmingham School of Law. He has been practicing Consumer Bankruptcy Law since 1999. Read his full bio here.