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What Happens When You Declare Bankruptcy?

Do you run out of money each month before you pay your debts? Are you forced to decide which debts to pay or whether to keep the lights on or pay your creditors? If so, you might want to consider bankruptcy as a debt relief option. When you declare bankruptcy, you are asking the bankruptcy court to eliminate debts that you cannot pay. 

Depending on the debts you owe and the chapter of bankruptcy you file, there could be a few debts you cannot discharge. However, when you declare bankruptcy, you can get rid of most unsecured debts to get the fresh start you need to recover from the financial crisis that resulted in your debt problems. 

Things That Occur After You Declare Bankruptcy

When you declare bankruptcy, several things happen. Five things that happen when you declare bankruptcy include:

1.  Bankruptcy Automatic Stay

The automatic stay provided in the Bankruptcy Code is effective upon the filing of a bankruptcy petition and continues until the stay is modified or the bankruptcy case closes. There are some instances in which the bankruptcy stay may not go into effect automatically, as in the case of multiple bankruptcy filings or dismissals of prior bankruptcy cases. A debtor might need to petition the court requesting protection from the bankruptcy stay in those cases.

The bankruptcy stay protects debtors from further collection of debt by creditors. It gives debtors the time they need to reorganize their debts in Chapter 13 or seek bankruptcy relief in Chapter 7. The Bankruptcy Code prohibits parties from taking any actions to collect a debt without prior approval from a bankruptcy judge.

2.  You Must Complete Your Debtor Education Course

There are two required bankruptcy courses debtors must complete before receiving their bankruptcy discharge. Before you declare bankruptcy, you must complete a credit counseling course. After you declare bankruptcy, you must complete a debtor education course. 

You take the second bankruptcy course after filing the bankruptcy petition. The deadline for completing the debtor education course and filing a certificate of completion depends on which chapter of bankruptcy you file. It is usually best to complete the debtor education course and file your certificate of completion before the First Meeting of Creditors to avoid forgetting about this requirement. If you do not complete the course or fail to file a certificate of completion, you do not receive a bankruptcy discharge. 

3.  Attend the First Meeting of Creditors

All debtors in bankruptcy are required to attend the First Meeting of Creditors or 341 Meeting. The bankruptcy court schedules the 341 Meeting after you declare bankruptcy. The hearing is usually held within a few weeks after filing a bankruptcy petition.

The bankruptcy trustee assigned to your case conducts the First Meeting of Creditors. There is not a bankruptcy judge present. You are required to answer questions about your bankruptcy case and finances under oath. Creditors are permitted to ask questions. In most cases, creditors do not show up to this hearing. 

4.  Propose a Chapter 13 Repayment Plan

If you file a Chapter 13 case, you must also file a proposed Chapter 13 repayment plan after you declare bankruptcy. The Chapter 13 plan describes how you intend to reorganize your debts in bankruptcy. All creditors and parties in interest, including the Chapter 13 trustee, receive a copy of the Chapter 13 plan.

A bankruptcy judge holds a confirmation hearing to approve or deny the proposed Chapter 13 plan. If the Chapter 13 trustee, the court, or a creditor objects to the proposed bankruptcy plan, your bankruptcy attorney can typically amend the plan to resolve the objection. 

5.  Receive Your Bankruptcy Discharge

If you meet the requirements and do everything required by the Bankruptcy Code, the court issues a bankruptcy discharge before your bankruptcy case is closed. The bankruptcy discharge releases you from the legal liability to repay the debts discharged through your bankruptcy case.

Most unsecured debts are eligible for a discharge in Chapter 7 and Chapter 13. Examples of debts you can get rid of in bankruptcy include, but are not limited to:

  • Credit card bills
  • Medical debts
  • Old rent or lease payments
  • Most old income tax debt
  • Some student loan debts
  • Old utility payments
  • Most personal loans and judgments

To determine which debts are dischargeable in bankruptcy, you should consult an experienced bankruptcy lawyer.

Before you file bankruptcy, you should compare your options and know the costs

Filing a bankruptcy case might be the best way for you to get out of debt.  However, you might also have other debt-relief options available. In some cases, an alternative to bankruptcy might be a better way to eliminate debts.

Ascend helps you compare the pros and cons of various debt relief options. It is wise to review all debt relief options before deciding to declare bankruptcy. Let’s get started now to see if Ascend is a good fit for you.

Post Author: Ben Tejes

Ben Tejes is a co-founder and CEO of Ascend Finance. Before Ascend, Ben held various executive roles at personal finance companies. Ben specializes in Chapter 13 Bankruptcy, Debt Settlement, Chapter 7 Bankruptcy and debt payoff methods. In his free time, Ben enjoys spending time going on adventures with his wife and three young daughters.

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