What is the Bankruptcy Process?
What is the Bankruptcy process?
There are two goals in every bankruptcy -- your goal and the trustee's goal. Your goal in bankruptcy is to get a discharge of debts; the trustee’s goal in bankruptcy is to collect as much property as possible and to use that to pay your creditors. It’s a fair exchange. You pay as much as you are able to your creditors, and the unpaid balance of your debts will be discharged.
The process begins with you. You file a petition with the U. S. Bankruptcy Court asking for a bankruptcy discharge. That petition may be filed under chapter 7 or under chapter 13. With that petition, you also make certain written disclosures. You must disclose everything that you own (all of your property or assets), all of your debts (everything that you owe to any other person, whether it can be discharged in bankruptcy or not), your current and expected income, and your current and expected living expenses. In addition, you must disclose all financial transactions in the recent past. Certain transactions over the past 10 years must be disclosed, but mostly you will disclose income, payment of debts, and transfers of property over the past few years.
In every bankruptcy, a trustee is appointed to administer the case. You will have to attend a creditors’ meeting, which will be conducted by the trustee. You will be required to testify, under oath, and answer the trustee’s questions about your finances. The trustee’s first task is to make sure that you are eligible to file bankruptcy and receive a discharge of debts. The second task is to determine that you have filed the proper type of bankruptcy (chapter 7 or chapter 13), and finally, to make sure that you are committing all of your available, non-exempt resources to paying your creditors. Also, at the creditors’ meeting any creditor may ask you questions about your finances.
In chapter 7, unless the trustee or any other interested party successfully challenges your right to a discharge of debts within 60 days after the creditors’ meeting, the court will issue an order discharging your debts. In chapter 7, if the trustee determines that you have non-exempt assets, you will have to turn over those assets to the trustee shortly after the meeting. So long as you cooperate with the trustee in the administration of the case, the case will successfully close; that is, you got your discharge and the trustee got as much as could be had for the creditors.
In chapter 13, you must propose a plan to pay something to your creditors. If you have non-exempt assets, the value of those assets will be the minimum amount that you will pay, in monthly payments, to the trustee over a 3 to 5 year period. You will also be required to pay off all tax and family support debt in that same 3 to 5 year period. In addition, in chapter 13, if you have disposable income, you will have to pay that to the trustee over the same 3 to 5 year period. The court will order you to complete your payment obligations as outlined in the plan. So long as you successfully complete the plan and make all the required payments, you will receive a discharge of the unpaid balance of your unsecured debts. Since the trustee will have received all of your disposable income, the creditors will get what they are entitled to.
In both chapters 7 and 13, you will pay what you are able to pay and, if payments are completed successfully, you receive a discharge. So long as the trustee has received all that's available for the creditors, the case will successfully close.
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The statements of law made here are general statements of law, effective at the time published and subject to change from time to time. These statements are not intended, nor may they be construed, to be applicable to any particular set of factual circumstances nor to any particular person. I recommend that all readers seek the assistance and advice of an experienced bankruptcy lawyer for guidance in their particular circumstances.
© Copyright 2013 David C. Hoskins, licensed Colorado lawyer