If you’re planning to file for bankruptcy, it’s important to understand how the process works. Let’s look at the steps involved with filing for Chapter 7 and Chapter 13 bankruptcy. For both Chapter 7 and Chapter 13, the first step in the process of filing for bankruptcy is mandatory credit counseling. A new bankruptcy law passed in 2005 now requires all bankruptcy filers to undergo credit counseling and financial management programs. Credit counseling costs about $50 and can be completed online. If the credit counseling service provides you with a repayment plan, you must file that repayment plan with the court.
The second step in the process of filing for bankruptcy is to file petitions, schedules, and a statement of affairs with the court. When these documents are filed with the court (you will sign them under penalty of perjury), you will be assigned a legal case number and your bankruptcy case begins. If you are filing Chapter 7, you will have a mandatory meeting with your bankruptcy trustee about one month after your case is filed. If you are filing Chapter 13, you will file a plan of repayment with your creditors. Under this plan, your creditors will receive no less than they would under a Chapter 7 filing and you will be required to pay all of your projected disposable income into the plan for a minimum of 36 months. The length of the repayment plan depends on a wide variety of factors. After filing your Chapter 13 repayment plan, you will then meet with the bankruptcy trustee.
The next step in the bankruptcy process is time for objections by creditors and the bankruptcy trustee. Your creditors have 60 days (90 in Chapter 13) after the first date of your meeting with the trustee to file a complaint objecting to the discharge of their debt. Creditors can claim fraud, false statements on a credit statement (i.e. overstated income), and request an extension to file their complaint. If a creditor files a complaint, there will be a trial. Typically, any complaints can be settled out of court. If you are filing Chapter 13, you will then have a “plan confirmation hearing” to confirm the terms and conditions of your repayment plan.
The next step in both chapters of bankruptcy is to complete a required financial management course. If you fail to complete this course, your bankruptcy will not be discharged. If you are filing Chapter 7, you must have completed this course and submitted the certificate of completion to the court no later than 45 days after the date first set for your meeting with the trustee. The financial management course is typically two hours long, and can be completed over the internet. The total cost for this course ranges from $19 to $50.
The final step in the bankruptcy process is the discharge. In Chapter 13, after you have completed all required payments under your plan, the trustee will begin to process your discharge. In Chapter 7, if no creditors object to your discharge within the 60 day period mentioned above, then you will receive your Notice of Discharge in the mail. It’s important to remember that you are not discharged of any debts until you receive the official discharge notice from the court.