Chapter 7 or 13?
Personal bankruptcy is usually categorized into a chapter 11 and 13, which is reorganized debt and/or debt reduction. People discharged of a chapter 13 will likely end up on a payment schedule for non-relieved debts.
Chapter 7 is almost total forgiveness or absolution, and most Americans who qualify will choose this type of bankruptcy. In order to qualify for a chapter 7, one must be under the state’s set income limit or have a certain percentage of debt, as business debt.
What to Expect
Get a good bankruptcy attorney who specializes in the appropriate type of filing. Initial consultations are usually free. Be prepared to pay the firm up front for the work, as it loses its right to collect any debts once your case is filed. Choose attorneys wisely, as mistakes or overlooked issues can be costly. The chosen attorney or law firm will ask for copies of everything, including tax returns, pay stubs, bank account statements, titles and deeds to real estate, vehicles, credit card statements, and a current credit report. This is to make sure that no debts are missed. The attorney will usually require the first pre-filing credit class with a certificate to be completed before the court filing. These filing courses are reasonable and can usually be done online.
This is focused on chapter 7, since it is the most popular personal bankruptcy relief.
The bankruptcy court will appoint a local trustee to monitor the case and determine if discharge will be granted, if any foul play or fraud is evident and so on. This trustee is paid a percentage of assets and money recovered in the process, so it’s to his or her advantage to get as much as possible. However, it is only what the law allows and only what is feasible. For example, under federal chapter 7 laws, an individual may keep one personal vehicle with equity under $5,000. So if a second vehicle valued at $800 is owned, it is the trustee’s decision to take the vehicle, ask for $800 in cash or just not bother with it at all, depending on current sales comparisons and costs of the sale.
The trustee is the “watchdog” and is looking closely at assets transferred or sold in the last year to be sure that they were sold at fair market value and not to relatives/friends for $1 with intent to be hidden.
Mandatory Court Appearance
This happens after review of each case, and it is in person and under oath. The trustee will address the entire room and sets instructions for filing income taxes and what to do with refunds. Next the trustee will call each client to ask specific case questions. This court appearance seems scary, but it isn’t. Creditors are allowed to be present to state their cases for reimbursement, but most of the time, none are present.
The trustee may call the individual with more questions after the court appearance and ask for additional copies of information. This information will have to be supplied quickly, usually within 10 days. One good tip is to have proof of everything already or be prepared to get it fast. For example, the trustee may ask who originally bought a vehicle in 2015. Immediately call the bank and get the check copy out of archives. Do not wait, as the process may take up to a week. Have the bank send it via email or fax if possible. Send all trustee information as per instructions via overnight or priority mail with tracking and confirmation. Honesty is always the best policy.
Once all debts are settled, the case will close, and it is considered discharged, meaning finished or closed.