What Happens When You File a Bankruptcy Petition?

What is a bankruptcy petition? What are the most common types and what happens after your case has been filed at the Bankruptcy Court?

The Bankruptcy Petition is a set of forms, also called schedules, that provide all your financial data to the Bankruptcy Court. These forms list your assets (real estate and personal property), income, expenses, and liabilities.

When you file your petition with the clerk at the bankruptcy court, the case begins.

Types of Bankruptcy Petitions

You can choose from four different types of bankruptcy petitions. Below are the four types:

Voluntary Petition for Individuals Filing for Bankruptcy
Voluntary Petition for Non-Individuals Filing for Bankruptcy
Involuntary Petition Against an Individual
Involuntary Petition Against a Non-Individual

The first two bankruptcy petitions are the only ones that will apply to you unless you’re a creditor who wants to force a person or business to file for bankruptcy.

The most popular petition is the Individual Voluntary Bankruptcy Petition. This petition is used by individuals who want to file for bankruptcy. The second petition is the Voluntary Petitions for Non-Individuals File for Bankruptcy used by business owners.

What Goes Into a Bankruptcy Petition?

You will need a lot more information to file a bankruptcy petition, but here are some key items you should include:

Name and address
What type of bankruptcy you are filing
Your estimated assets, debt amount, and number of creditors
Non-exempt assets: Information on assets that you cannot keep after bankruptcy
Pending evictions or related bankruptcy

Here is a sample of what you need to include with your bankruptcy petition. Your bankruptcy attorney can guide you through the information that you will need to include.

What Happens After I File My Bankruptcy Petition?

After your petition has been filed at the Bankruptcy Court, the Court will send all of your creditors a Notice of Bankruptcy Case. The Notice will also tell your creditors which Chapter (Chapter 7 or Chapter 13) you have filed. This Notice is usually sent to your creditors within 7-10 days of filing.

What Is an Automatic Stay?

The automatic stay is in effect the moment your bankruptcy case is filed. This prevents your creditors from initiating any collection actions against you and stops them immediately. It stops your creditors dead in their tracks.

The automatic stay means a creditor can’t call, send collection letters, bring a lawsuit, or attempt to collect the debt.

Chapter 7 Bankruptcy

As noted above, Chapter 7 and Chapter 13 are the most common bankruptcy cases that individuals file.

The Chapter 7 Bankruptcy or straight bankruptcy is the most common and easiest type of Bankruptcy. It is intended to give debtors “a fresh start” in their finances. All qualifying debts will be discharged at the end of the bankruptcy process, usually in less than four months.

You can determine whether you qualify to file for Chapter 7 bankruptcy by taking the “means test”. Your income must be less than the median in your state. You may not qualify to file bankruptcy under Chapter 7 if your income is high.

Chapter 7 Automatic Stay

Automatic stay goes into effect as soon as you file your Chapter 7 petition, providing you with your initial breathing room in the bankruptcy process. It is a legal provision that prevents creditors from pursuing any attempts to collect money from you. This means that creditors are prohibited from sending you collection notices, initiating lawsuits against you, or making phone calls in an attempt to collect money from you.

The automatic stay serves as a protective shield, ensuring that you are temporarily shielded from the pressures of debt collection while you navigate the bankruptcy proceedings.

Your Credit Score Takes a Hit

Your credit score will fall pretty quickly after filing for Chapter 7 bankruptcy. This is a hard realization for many people. If you’re already behind in your payments, it is possible that your credit score will be already lower. Bankruptcy can lower your credit score but also help you get back on track financially.

Notice of Bankruptcy Case Filing

A clerk will send a notice after the court has received your Chapter 7 bankruptcy filing to inform all your creditors that you filed and what chapter you filed. The notice is usually sent to creditors within 10 business days after you file the petition.

Working With the Chapter 7 Trustee

You will work with the trustee in your case to determine which assets are exempt and which ones will be liquidated for repayment to creditors. During this stage, the trustee may ask for copies of financial documents.

Your creditors can file objections during the meeting with creditors and afterward to try to stop you from settling certain debts. A bankruptcy lawyer is beneficial in this part of the process because they can negotiate and ensure that you are treated fairly by creditors and trustees.

Financial Management Course

You will need to show proof of completing a financial management class before you can have your Chapter 7 debts officially discharged.

Debts Discharged

After the trustee collects your nonexempt assets and property, he will convert them into cash to distribute among your creditors. Your eligible debts will be discharged at that time. You will usually receive a letter informing you that your debts are discharged.

Chapter 13 Bankruptcy

You can still file a Chapter 13 if you’re not eligible. You will create a plan in Chapter 13 to consolidate your debts and reorganize them on your own terms.

Stop the interest that is out of control on your credit cards, personal loans, and payday loans. You can lower your interest rate and extend the term of your personal loans, vehicle loans, or other loans for property while still making your payments affordable.

You can include your arrears in your repayment plan if you’re facing foreclosure and are behind with your mortgage. Other types of Bankruptcy are available but are reserved for specific cases such as those involving corporations (Chapter 11), fishermen and farmers (Chapter 12), and municipalities (Chapter 9).

Chapter 13 Automatic Stay

As with Chapter 7 bankruptcy, Chapter 13 bankruptcy also requires an automatic stay to be imposed the moment your petition is filed. The creditors will no longer be able to collect payments from you.

The court will appoint a trustee to oversee your case a few days after your Chapter 13 petition is filed.

How Chapter 13 Affects Your Credit Score

Your credit score is likely to drop shortly after filing your Chapter 13 bankruptcy petition. It is common for credit scores to drop after filing for bankruptcy. However, bankruptcy is about rebuilding your finances so your score will improve if you take the right steps financially after bankruptcy.

Notification of Chapter 13 Filing

A few days after filing, the court will notify all your creditors that you have filed for Chapter 13 bankruptcy. This notice will include important information such as when your creditors must file their objections, the date for the creditor’s meeting, and the time of the confirmation hearing.

Creditors File Objections to Your Repayment Plan

Your creditors can object to your repayment plan up to 25 days prior to the confirmation hearing. These objections usually aim to give the creditor a larger share of your repayment plan.

Working with the Chapter 13 trustee

Chapter 13 trustees will gather relevant financial documents like tax returns and similar documents up to a week before the creditors’ meeting. The trustee is obligated to work with you and collect these documents.

Start of Repayment Plan Payments

You must start paying your repayment plan even before it is approved. These payments must begin within one month of filing your Chapter 13 bankruptcy petition.

Chapter 13 Confirmation Hearing

You must attend an approval hearing between 20 and 45 days following the creditors’ meeting. The court will review your repayment plan, as well as any objections raised by the trustee or creditors at this hearing to determine whether it should be approved.

Financial Management Course

You must adhere to your payment plan for three to five years if it is approved. There’s still one step left to do before you can discharge your debts: complete a financial management course and submit a certificate proving you passed it.

Debts Discharged

The court will officially discharge your debts, whether you appear in court or send a letter. Your Chapter 13 bankruptcy is complete.

Meeting of Creditors

In addition to informing your creditors of bankruptcy, your Bankruptcy petition will also tell them the date and location of the “meeting of creditors”, otherwise known as the 341 meetings. You are required to attend the mandatory meeting as the Debtor. This meeting’s ultimate purpose is to allow the Bankruptcy Trustee to question you under oath regarding your assets and financial affairs.

Do not worry, as creditors seldom attend the creditors’ meeting, despite their name. The creditors will review your Bankruptcy Petition that you filed before the Court. This should answer all of their questions. Attending the 341 meeting is not beneficial to creditors unless they believe that you are lying or hiding assets on your bankruptcy petition.

We Can Help You Through the Bankruptcy Process

If you find yourself grappling with the complexities of bankruptcy laws, Bruner Wright is here to assist you. As a reputable bankruptcy law firm in Florida, we understand the challenges you may be facing with debt and are ready to guide you through the process.

Take the first step towards financial relief by reaching out to us today. Schedule a complimentary initial consultation with our experienced team, where we can address your concerns and provide answers to your questions regarding Chapter 7 Bankruptcy and Chapter 13 Bankruptcy.

With our expertise, we can help alleviate your stress and provide the support you need. Trust us to make a positive impact on your financial future.

What Happens When You File a Bankruptcy Petition?