What Happens When You File Bankruptcy

Even after so many people in America filing for bankruptcy every day, people have a very little knowledge of what happens when you file bankruptcy. Generally people believe that they have to sell all their assets, lose everything and something similar like this is what happens when you file bankruptcy on your house or car or any other property. But, this is not true. In fact, bankruptcy is a legal procedure that allows the debtor to start afresh by discharging all or a portion of their unsecured debts. It is one of the best options for those who are burdened with significant amount of loans and have very few assets. You can also use it as a mean to stop the creditors and debt collectors from seizing your property, sue you for not paying the bills, and from harassing you for debt collection, etc.

Things that Happen When You Go Bankrupt

Well, what happens when you file bankruptcy depends largely on the kind of bankruptcy you file for. Basically there are four types of bankruptcy that are defined by the law section under which the bankruptcy is filed. They are as following:

Chapter 7 Bankruptcy: Chapter 7 bankruptcy is one of the most common type and is also known as 'personal bankruptcy'. By this type of bankruptcy filing, most of the unsecured debts of a person are eliminated and it also prevents the creditors from taking further collection efforts. Your property that is not exempted is handed over to the bankruptcy trustee for liquidation.

Chapter 11 Bankruptcy: Chapter 11 bankruptcy is specially meant for the business that wish to reorganize. A business seeks certain relief in terms of time and amount as per the business type. It is a complex bankruptcy and is subject to the nature of the business. But this kind of bankruptcy can also be filed by individuals.

Chapter 12 Bankruptcy: This bankruptcy is again meant only for family farmers. This type allows the farmer to pay back the debt over a certain time period. It has some special procedure and is not applicable to business or individuals who are not farmers.

Chapter 13 Bankruptcy: Chapter 13 bankruptcy is also known as 'reorganization bankruptcy'. This type allows the debtor to pay or incur the loans over a certain time period without surrendering the property to the creditors. But to be qualified for this type of bankruptcy, your loan should not exceed a certain amount and you also have to submit a repayment plan to the bankruptcy court for approval. If you plan is not approved then the bankruptcy is converted to chapter 7.

So, what happens when you file bankruptcy is determined by the section under which it has been filed. But there are certain proceedings and procedures that remain the same for all the types. Those after bankruptcy procedures are as following

• Once you file the bankruptcy in the court, an 'automatic stay' is issued. It prevents all the creditor and debt collectors from taking any action against on you and also from collection activities. It also puts the stay on the cases pending against you.
• After around thirty days, you will be called for a meeting with your creditors which will also be attended by the bankruptcy trustee, where all your financial issues and bankruptcy will be discussed in details.
• If you have filed for chapter 13 or chapter 11, then your repayment plan is scrutinized and will be formulated well. The trustee will then observe and monitor if you are making the repayment as the plan. Any failure in the plan will result in transforming the bankruptcy to chapter 7 where you can no more possess the property.
• In case of chapter 7, the court will go through your bankruptcy papers, and the property which is non exempted will be handed over to the bankruptcy trustee for liquidation.
• The bankruptcy trustee will go through your assets and decide which assets to be sold off so that you can back the debt or loan. And you will be told about this and may be even included in the decisions.
• You are also informed to take all the decisions regarding your property, such as selling or renting the property, only after consulting the bankruptcy court and the bankruptcy trustee.
• Within four to six months you will receive the discharge. In case of chapter 7, you have the right to back out or dismiss your bankruptcy until you obtain a discharge.
• You get a license to start afresh and this is what happens after bankruptcy discharge. But the bankruptcy charge will remain on your credit report for next seven years that may damage your credit and self-esteem. You may also face difficulty in getting new loans from the banks and creditors. But if you exhibit a good financial behavior you may start getting the loans easily after one or two years.

It is important to consult your attorney before you apply, to know about the nuances as there is a certain limit to how often you can file bankruptcy. Generally, it is once in six years but it is better to consult an attorney who will tell you how many times you can file bankruptcy depending on the type of bankruptcy you wish to file. Life after bankruptcy may be a little challenging but it will certainly give you one more chance to lead a good debt-free life.