What Happens When You Declare Bankruptcy? 9 Things to Know
1. A Trustee Is Assigned to Your Case
Immediately after filing for bankruptcy, you will receive a case number. A trustee will also be assigned to your case. This person oversees your filing, from reviewing your completed bankruptcy forms to asking for additional documents when information needs to be verified. The trustee also manages the meeting of creditors.
2. An Automatic Stay Goes Against Creditors
The court issues this stay automatically to stop all debt collection activity. Although a stay does not cancel your debt, it does suspend collection efforts until your bankruptcy case is complete or the stay is lifted. This means freedom from:
- Civil lawsuits on the debts
- Calls and letters from debt collectors
- Home mortgage foreclosure
- Wage garnishments
- Property repossession
If a creditor ignores this stay and continues trying to collect the debt, your attorney can initiate a contempt of court action against them. Such an action grants the court power to fine the creditor, make them pay you damages, and/or stop their collection attempts. You should note, however, an automatic stay does not apply to:
- Government tax audits
- Criminal proceedings
- Child support or alimony
- Co-debtors or co-signers
3. Debts May Be Discharged
Depending on the chapter of bankruptcy you file, you may be able to cancel (discharge) your responsibility to pay certain debts. Those that can commonly be discharged include personal loans, medical and utility bills, judgments on repossessions and foreclosures, and credit card debt. It's important to know that only those debts listed within your bankruptcy filing can be discharged.You should also know some debts are excluded from these proceedings and cannot be discharged, including:
- Debts acquired through fraud
- Criminal fines and restitution
- Student loans
- Alimony and child support
4. A More Affordable Payment Plan Is Possible
The monthly payment you're ordered to make is determined by your budget, which your attorney will help you put together. It reflects a combination of factors, including your monthly expenses and IRS standards. But Chapter 13 does come with financial requirements for Johnson County, KS, residents; you must have a regular income source in addition to disposable income that can be applied to your repayment plan.
5. Your Home and Personal Belongings May Be Saved
Many people wrongly assume that bankruptcy means giving up all of their possessions. Even with Chapter 7, the law provides generous exemptions so you can keep those items most important to you. Common property that can be exempted includes your home - provided it makes financial sense to do so - household goods, wedding rings, and items needed for personal care.You can also exempt your vehicle. In Chapter 13, you can keep your car and continue paying the loan through a repayment plan. This is flexible enough that the interest rate and principal balance may both be reduced. In Chapter 7, you have several different options, including paying only the vehicle's cash value if you owe more than it's worth. Each scenario provides helpful solutions when you're behind in payments.
6. Your Credit Can Be Rebuilt
- Staying current with non-bankruptcy accounts, such as student loans
- Responsibly applying for new debt, such as a secured credit card or credit-builder loan
- Keeping new balances low and manageable
- Monitoring your credit report
Avoid Job Hopping
Although this act in and of itself does not affect your credit score, it can influence the decisions of lenders. They want to see you're able to repay the loan with a reliable and verifiable source of income. Keeping a stable job works to your advantage by boosting the confidence lenders have in your ability to repay, even after bankruptcy.
7. You'll Lose Current Credit Cards
After your bankruptcy is discharged, you'll likely receive a number of offers for unsecured credit cards. As we discussed just a moment ago, these can help rebuild your credit, but it's important to read the fine print. These cards often come with high interest rates and annual fees.
8. Co-Signors Are Not Off the Hook
9. You'll Have a Meeting of Creditors
We mentioned earlier the trustee assigned to your case will manage your meeting of creditors. This isn't as scary as it sounds, and your lawyer will handle on your behalf much of the interaction necessary. In addition, he or she can help you collect the documents requested by the trustee, including copies of tax returns and pay stubs. You must get these documents to the trustee within the time frame given, or your case will be dismissed.Although creditors are invited to this meeting, they rarely attend. The meeting will likely last around 10 minutes, is not held in a courtroom (it may even be conducted virtually), and no judge will be present. Depending on which chapter of bankruptcy you file, certain actions will follow this meeting; for Chapter 13, your trustee will begin to oversee the monthly payments you make. For a Chapter 7 case, you'll be eligible for a discharge.Bankruptcy is a big step, but it's also one that can bring immense relief. The freedom from harassing collection calls, an affordable payment plan and/or debt erasure, and a chance to start over can be life-changing. If you're wondering what happens when you declare bankruptcy, we're here to help. Learn about the options available to you today by calling Stockton & Stern, LLC, Attorneys at Law.