Filing For Bankruptcy: How It Works

Which bankruptcy should you file? How does filing for personal bankruptcy work? I have provided the basic answers to these questions below. Each case is unique, however, and it is a good idea to speak with a bankruptcy lawyer to discuss your financial situation and options for debt relief.

I offer down-to-earth advice to individuals in Grand Rapids and throughout Western Michigan. For a free, no-risk meeting, please call 616-259-4328 or contact me via my online form.

Chapter 7 Vs. Chapter 13 Bankruptcy

Whether you file for Chapter 7 or Chapter 13 bankruptcy depends largely on your financial circumstances and what property you would like to keep in bankruptcy.

Chapter 7 isn't available to everyone. In order to qualify for Chapter 7, you must pass what is called the "Chapter 7 means test." This test looks at your debts and disposable income. If you qualify, most of your debts will be discharged through bankruptcy, but you may also need to liquidate some of your property in order to pay back creditors. We can discuss which of your assets are exempt from bankruptcy. In many cases, you will be able to keep your home and your car, among other important possessions. In fact, in most cases, you keep all of your assets.

Chapter 13 is a good option for people going through home foreclosure. Through Chapter 13, you can create a repayment plan to catch up on your mortgage and make at least partial payments to creditors. This may mean lower monthly payments and lower interest rates. The plan can last for up to five years. Once you have paid the last plan payment, much of your unsecured debt will be discharged. You may also be able to strip additional mortgages if your home is worth less than the amount due on your first mortgage.

The Lifecycle Of A Standard Chapter 7

The Chapter 7 bankruptcy process is complex. Here is how a standard Chapter 7 works:

  • Filing date: The automatic stay stops creditor harassment, foreclosure, repossession and wage garnishment. The court will notify your creditors of your petition and assign a bankruptcy trustee to monitor your case.
  • Approximately one month after the filing date: 341 meeting date with your creditors. This is called the section 341 hearing. You will meet with your creditors and the bankruptcy trustee, who will ask you questions about your Chapter 7 petition and your finances.
  • 60 days after the 341 hearing: "Breathe-easy" date. During the first 60 days, problems can pop up to prevent your bankruptcy from moving forward. I call the 60-day mark the "breathe-easy" date because, after that date, creditors cannot object to your claims for exemptions.
  • 45 days after the hearing: Financial management class. You will be required to complete a financial management class (online or by telephone) or your case will be closed.
  • Two weeks to two months after the hearing: Discharge! The bankruptcy court will discharge your unsecured debts, issuing a discharge notice.

The Lifecycle Of A Standard Chapter 13

  • Filing date: The automatic stay stops creditor harassment, foreclosure, repossession and wage garnishment. The court will notify your creditors of your petition and assign a bankruptcy trustee to monitor your case.
  • 15 days later: File the repayment plan. Within 15 days of your filing day, you must file your financial schedules and your repayment plan with the court.
  • One month after your filing date: You must begin payments under your repayment plan.
  • Approximately 45 days after your filing date: Creditor meeting. You and your attorney will meet with your creditors and the bankruptcy trustee. If any creditors come to the meeting, you may need to discuss your bankruptcy plan and testify to its accuracy.
  • One month after the creditor meeting: Creditor objections. Creditors can object to your bankruptcy plan within one month of your meeting with them.
  • 45 days after the meeting: Court hearing. During this court hearing, the bankruptcy trustee will tell the court whether it should approve your bankruptcy plan. If your plan is approved, your creditors must file their proof of claims showing the court how much you owe them.
  • Three or five years later: Discharge! You will make your final payment. The court will send you a discharge notice discharging you from your unsecured debts.

At some point in the Chapter 13 process, you must complete a financial management course. Failure to do so will prevent discharge of your debts.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.