The US Bankruptcy Code contains the written laws that are designed to assist people and corporations that are “upside down” financially in getting a fresh start. With individuals, a bankruptcy is often a very easy procedure, and in most cases the bankrupt person is able to keep his or her home, and sometimes even their car, in addition to their personal possessions. Companies are usually required to liquidate their assets or to reorganize. Bankruptcy cases are filed in federal court, usually with the assistance of a bankruptcy attorney.
How Is a Bankruptcy Initiated?
The first step is for the debtor, generally by way of his or her lawyer, is to file a petition with the court in their area of residence. A schedule of liabilities and assets will be included, along with a statement of current expenditures and income, plus a financial statement. The trustee for the case (who is again, usually a bankruptcy attorney) will also be given a copy of the debtor’s tax return for the previous year, any outstanding tax returns, and any returns that have to be filed while the case is in progress.
If the debtor is seeking relief from consumer debt, they will also have to file a certificate stating that they have completed credit counseling. Any remuneration from employers that was received up to 60 days prior to filing, as well as any increase in income or expenses that they anticipate will occur after they file, will have to be reported. If they have any interest in state or federal tuition or education accounts, that will also have to be reported.
Official forms designed for this information can be purchased at stores that sell legal stationery, or can be downloaded from: www.USCourts.gov/BkForms/Index.html.
What Type of Information is Required in the Schedules?
In order to properly complete the forms, the debtor must provide a complete list of creditors, the type of claim, and the amount owed.
They will also have to provide the source, frequency and amount of his or her income, plus a detailed list of their property.
A full accounting of expenses (rent/mortgage, transportation, food, clothing, entertainment, etc.) must also be included.
Married people have to provide the same information for their spouses, even if their spouse is not filing, or if they are filing jointly. This is so that the court can evaluate the financial position of the household.
The debtor will also provide a list of property that is exempt. Although bankruptcy is filed federally, state laws may affect what is and is not exempt. A bankruptcy attorney can be of assistance in determining exemptions.
What About Fees?
A case filing fee and administrative fees are charged by the bankruptcy court, and must be paid to the court clerk at the time of filing. Sometimes the court will permit payment in installments (no more than four) that have to be completed in no more than 120 days after filing. The court may, in some cases, extend this to 180 days. If the debtor fails to pay the fees, their case may be dismissed.
What Happens Next?
As soon as you file, your creditors and their collection agencies are stayed from contacting you, garnishing your wages, or initiating further actions against you. The trustee for the case will hold a meeting of creditors 21-40 days after you file. The debtor must also be in attendance. The trustee will ask questions of the debtor in order to make sure that he or she is fully aware of the consequences of a bankruptcy. The creditors may also ask questions. A discharge typically occurs approximately four years after the filing
This is a very brief overview of some very important procedural issues. If you have specific questions about bankruptcy please contact us today, or visit: http://www.uscourts.gov/FederalCourts/Bankruptcy.aspx to find out more.