What Happens When Filing for Bankruptcy?
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Chapter 7 Bankruptcy
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If you file for Chapter 7 bankruptcy, the case should take about four to six months to complete. Once you or your attorney have submitted all required papers--which include a full disclosure of your income, property and debt obligations--you will be called to a 341 meeting. This court hearing, known as a meeting of creditors, is an opportunity for anyone affected by your bankruptcy case, such as a credit card company, to object to your bankruptcy case. As long as there is no suspicion of bankruptcy fraud, this meeting will likely occur without any objections. Then you wait for a discharge hearing, where you or your attorney will be told that the bankruptcy is completed.
Once your bankruptcy is completed, the fact that you filed will remain on your credit report for 10 years. However, you will no longer be legally obligated to pay included debts such as credit card bills, personal loan payments, back rent, utilities and medical bills.
Chapter 13 Bankruptcy
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Chapter 13 bankruptcy runs slightly differently, in that it takes about four to six months for the debt repayment plan to be approved by the court. However, you still have a meeting of creditors to attend. Your bankruptcy trustee, a representative of the federal bankruptcy court, will help formulate a debt repayment plan that satisfies your income requirements and priority creditors. Priority creditors include student loan debts, recent taxes, court fines, child support and alimony. Likely, most of or even all of your unsecured debt, like credit cards and medical bills, could be dramatically reduced or even dropped.
Once your repayment plan is approved, you typically finish it over a period of up to five years. You cannot get any kind of credit without bankruptcy court approval during the course of your debt repayment.
Once your plan is complete, you will be officially "out" of Chapter 13 bankruptcy and free to get credit and spend your disposable income as you wish. However, the Chapter 13 bankruptcy will stay on your credit report seven years from the year you actually filed bankruptcy--not the year you complete your court-supervised debt repayments.
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Considerations
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Those people who want to keep property such as a house will want to pursue Chapter 13 bankruptcy, as Chapter 7 cases typically require the debtor to sell his or her assets to offset any creditor losses. In addition, those who charged items on their credit cards or took out loans right before filing for Chapter 7 bankruptcy can be charged with bankruptcy fraud. However, it is not illegal to make purchases right before pursuing a Chapter 13 case. Student loans, court fines, recent taxes, child support and alimony cannot be liquidated through a Chapter 7 bankruptcy case. Rare exceptions are made for student loans if the debtor's college has gone out of business or a serious, permanent disability that prohibits repayment is proven to the court.
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