In many ways, filing for bankruptcy offers tremendous relief to people who are struggling with overwhelming debt and aggressive debt collectors. However, it can also be a daunting endeavor involving large quantities of paperwork, official proceedings, and complicated jargon. And it’s only more challenging if you don’t know what to expect will happen. But knowledge is power, and the better you understand the bankruptcy process, the more comfortable you will feel throughout it. In this article, we’ll share what you can expect to occur after you file for bankruptcy.
If you file for Chapter 7 or Chapter 13 bankruptcy, you will have a trustee assigned to your case. He or she will administer your case, verify your information, and represent your creditors’ interests. You will interact with your trustee several times throughout the time your case is active.
Toward the beginning of the bankruptcy process, your trustee will oversee a 341 meeting of creditors, in which you will have to give information about your debts and assets under oath. Creditors may attend this meeting if they choose, but they rarely do. While it may sound intimidating, the goal of the 341 meeting is mostly just to verify the information you included in your bankruptcy paperwork.
Filing for bankruptcy triggers an automatic stay, which requires creditors to stop their efforts to collect the money you owe them. This will stop wage garnishment and prevent further collector calls and letters.
All debtors filing for bankruptcy are required to undergo credit counseling before filing and a debtor education course after they file as a condition of having their debt discharged. These courses are designed to instruct debtors on how to budget, use their credit responsibly, and manage their finances.
If you file for Chapter 7 bankruptcy, your non-exempt assets will be put into your bankruptcy estate. Your bankruptcy trustee will liquidate your properties and distribute the money to your creditors. However, not all of your properties will necessarily get sold off. Any exempt assets, such as household items, clothing, and some equity in your home—necessities of daily living—will not be liquidated.
If you file for Chapter 13 bankruptcy, you will follow your repayment plan and begin to pay off what you can of your debts within either three or five years. However, there are certain debts that are nondischargeable and will usually have to be paid off in full, such as certain taxes, domestic support obligations, criminal penalties, and student loans.
Next, your eligible debts will be discharged. These include things like:
Secured debts such as a mortgage or car loans can be included in your repayment plan, and you can have the remaining debt discharged as long as you don’t default on the payments during the repayment period. However, because your creditors' liens will remain valid during that period, they maintain the right to foreclose or repossess your property if you default on those payments. To avoid this, you can negotiate with your creditor to make payments toward your loans if necessary.
One of the most severe consequences of filing for bankruptcy is its impact on your credit score. Bankruptcy lowers your credit score and can remain on your credit report and in the public record for ten years for Chapter 7 and seven years for Chapter 13. Additionally, you will most likely see your insurance premiums go up.
Because of your poor credit, it will be rather challenging to get a new car loan or mortgage after finalizing your bankruptcy case. Your interest rates will also be higher when you do. However, to rebuild your credit, you can take steps such as:
If you get back into financial trouble and want to file for bankruptcy again, you will have to wait a certain length of time to do so. Subject to certain exceptions, the specific waiting periods are as follows:
Bankruptcy is a complex process with both advantages and disadvantages for the insolvent debtor. One step you can take to make the process feel much smoother and less overwhelming is to familiarize yourself ahead of time with what the bankruptcy process looks like. Additionally, working with a skilled lawyer with extensive bankruptcy experience can help you understand and navigate the bankruptcy process and avoid making any kind of mistakes along the way that might complicate things.