Bankruptcy law is a Federal law. This page gives you some general information about what happens in a bankruptcy case. The information here is not complete. You may need legal advice.
When you file bankruptcy:
You can choose the kind of bankruptcy that best meets your needs:
Chapter 7 - A trustee is appointed to take over your property. Any property of value will be sold or turned into money to pay your creditors. You may be able to keep some personal items and possibly real estate depending on the law of the state in which you live.
Chapter 13 - You can usually keep your property, but you must earn wages or have some other source of regular income and you must agree to pay part of your income to your creditors. The court must approve your repayment plan and your budget. A trustee is appointed and will collect the payments from you, pay your creditors, and make sure you live up to the terms of your repayment plan.
Chapter 12 - Like Chapter 13 but it is only for family farmers.
Chapter 11 - This is used mostly by businesses. In Chapter 11, you may continue to operate your business, but your creditors and the Court must approve a plan to repay your debts. There is no trustee unless the Judge decides that one is necessary; if a trustee is appointed, the trustee takes control of your business and property.
If you have already filed bankruptcy under Chapter 7, you may be able to change your case to another chapter.
Your bankruptcy may be reported on your credit record for as long as ten (10) years. It can affect your ability to receive credit in the future.
What is a Bankruptcy Discharge and how does it operate?
One of the reasons people file bankruptcy is to get a "Discharge". A discharge is a court order which states that you do not have to pay most of your debts. Some debts cannot be discharged. For example, you cannot discharge debts for:
- Most taxes
- Child support
- Most student loans
- Court fines and criminal restitution
- Personal injury caused by driving drunk or under the influence of drugs
The discharge only to debts that arose before the date you filed.
Also, if a Judge finds that you received money or property by fraud, that debt may not be discharged.
It is important to list all of your property and debts in your bankruptcy schedules. If you do not list a debt, for example, it is possible the debt will not be discharged.
The Judge can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide property, falsify records, lie, or if you disobey a Court order.
You can only receive a Chapter 7 discharge once every eight (8) years. No one can make you pay debt that has been discharged, but you can voluntarily pay any debt that you wish to pay. You do not have to sign a reaffirmation agreement or any other kind of document to do this.
Some creditors hold a secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your car). You do not have to pay a secured claim if the debt is discharged, but the creditor can still take the property.