What to Expect After You File for Bankruptcy
Most online resources for information on filing bankruptcy cover the filing process itself: the paperwork and documentation you must submit, and the eligibility criteria you will need to meet to qualify for the specific chapter of bankruptcy you will be filing under. However, many individuals are not sure about what happens once their case is filed and submitted.
What happens after you file bankruptcy naturally changes based on the chapter you will be using. Since Chapter 7 and Chapter 13 bankruptcy are the most common forms used by individuals, this resource will primarily discuss those two types of filings.
The procedure for what follows after filing bankruptcy is fairly standardized, but there may be some differences based on your unique situation. Refer to a bankruptcy attorney in your filing region for specific guidance and assistance with the bankruptcy process.
What Happens After You File: Chapter 7 and Chapter 13 Similarities
Once you file bankruptcy through either Chapter 7 or Chapter 13, you will be assigned an impartial case trustee. This trustee will effectively manage all aspects of your case. You will, in most cases, not need to directly interact with the judge presiding over your case or any court officials. Instead, most communications will either be filed directly with the court or to the case trustee.
As part of your filing process, you will be granted a temporary automatic stay on all collections. During the stay, no creditors may contact you or take any new actions to pursue your debt. This includes selling your debt to another debt-holding company. The stay may be short, but it will give you time to make arrangements and prepare yourself for the likely partial repayment period ahead. You may use this time to make arrangements to avoid foreclosure, but only directly interact with creditors when you are advised to do so by your personal bankruptcy attorney.
Around 21–50 days after the petition for bankruptcy has been filed, the case trustee will hold a meeting of creditors. The debtor will be placed under oath to fulfill the duties expected of them under the U.S. bankruptcy code. The trustee and creditor can then ask the debtor questions or air specific concerns. The debtor must be in attendance. These meetings may take place virtually, with approval from the U.S. bankruptcy court and the case trustee, depending on the circumstances.
Another primary role of the case trustee is to exercise “avoiding powers” to investigate and seek out preferential repayment of debts in the 90 days before the petition was filed. They will then reverse these payments and incorporate the assets in any repayment agreement, as appropriate. The trustee may also reverse certain agreements pertaining to secured assets, such as a home if the transaction was not “perfected” by the time of filing.
What Happens After You File Chapter 7 Bankruptcy
Once the meeting of the creditors has occurred, the trustee will assess all of the debtor’s declared assets. If there are no remaining assets after exemptions, the case becomes a “no asset” case. The U.S. Bankruptcy Court states that most Chapter 7 filings involve “no asset” cases.
If there are assets, then all unsecured creditors must file a claim within 90 days of the meeting of creditors. The trustee will gather all resources into a legal entity known as an “estate”, which technically temporarily owns all property held by the debtor. The trustee will then liquidate non-exempt assets from the estate. The proceeds from the sale of assets will be used to pay creditors according to their class. There are six classifications of unsecured creditor claims. The higher-priority classes must be paid in full before the next class below can receive any payments.
Once the extent of assets has been exhausted, the remaining debts may be eligible for discharge. “Generally, excluding cases that are dismissed or converted, individual debtors receive a discharge in more than 99 percent of chapter 7 cases,” according to the U.S. Bankruptcy Court.
What Happens After You File Chapter 13 Bankruptcy
Once you file Chapter 13 bankruptcy, you will be assigned a case trustee. This trustee is responsible for collecting all payments according to the plan established during credit counseling. Payments are made either biweekly or monthly. The trustee distributes the payments pro-rata to all claimant creditors.
Unlike Chapter 7, Chapter 13 will involve all claims. Payment is expected to be made in full to all priority claims, which includes federal student loan debts, court-ordered payments, and owed back taxes. The remainder of the payment is split between secured and unsecured creditors, with secured creditors retaining higher priority.
To be eligible to receive any repayment, creditors must file a claim within 90 days after the initial meeting of creditors.
Chapter 13 filings can delay foreclosures and allow mortgage holders to catch up to repayments in order to prevent a foreclosure sale from occurring. For other secured property, the debt holder must pay at least the value of the property through their repayment plan to prevent repossession.
The remaining unsecured debts may be discharged in most cases.
What a Discharge Means
Someone who successfully completes bankruptcy is no longer legally obligated to pay any discharged debts. These debts can still be kept on the books of creditors, but they are legally barred from pursuing the debts or selling them to another company. The creditor is allowed to set policies for those who hold discharged debts, such as refusing credit or refusing to render services. However, the creditor may not file a lawsuit against the debtor, establish a lien, or otherwise take any actions to collect the debt or interact with the debtor regarding debt collections.
Bankruptcy Filings and Discharged Debts Remain on Your Credit Report
The bankruptcy chapter you filed and publicly available information on the debts discharged can all remain on your credit report. Typically, these items are deleted after a period of 7 to 10 years. These items are likely to affect your ability to obtain credit. You may begin to rebuild credit, though, at the discretion of individual creditor agencies.
Waiting Period Required Between Filings
If you discharged debt in a bankruptcy filing, you are not eligible to discharge debt again until a waiting period lapses. The waiting period for Chapter 13 is 2 years, generally, and the waiting period for Chapter 7 discharges is 8 years. If you filed Chapter 13 and wish to file Chapter 7, you must wait 6 years before doing so in order to receive a discharge. Likewise, you must wait 4 years between filing Chapter 7 and Chapter 13.
Speak to a New Mexico Bankruptcy Lawyer to Know What to Expect
Every person has unique circumstances during bankruptcy, especially when it comes to the types of debts and whether or not you have liens. In most cases, bankruptcy-related obligations are procedural, so you won’t have to worry about uncertainty once your case is filed. However, you may need to take actions involving property with liens and unsecured debts if you wish to keep these properties.
All of your questions and concerns can be addressed when you work through a New Mexico bankruptcy lawyer. New Mexico Financial & Family Law can represent you during your case and provide specific advice on the best actions to take given your goals and your unique situation.
Let us help you plan ahead for your bankruptcy and your new future by telling you what to expect during a no-obligation, confidential case review. Schedule your case review now when you call (505) 503-1637 or contact us online.