Here we highlight what happens after you file bankruptcy. In our other articles about bankruptcy, we discuss when filing is a good option and how to file for bankruptcy. If you haven't done so, we suggest you start at the beginning of our series with our article, Declaring Personal Bankruptcy.
Your bankruptcy will begin as soon as your attorney has filed your bankruptcy petition and other legal paperwork with the court. Once that happens, the court will issue an automatic stay requiring creditors and debt collectors to stop trying to collect from you.
However, there are exceptions to the automatic stay. For example, efforts to collect any past due child support or spousal support you may owe can continue. The automatic stay will remain in place while you are in bankruptcy.
Once you have filed, the court will assign a trustee to your case. The trustee will probably be an attorney who is in private practice, or an accountant. Although some of the trustee’s responsibilities will depend on whether you file Chapter 7 or Chapter 13 bankruptcy, the trustee will do the following regardless of which type of bankruptcy you file:
It's also possible that the trustee will ask the court to dismiss your bankruptcy if he or she believes that you’ve abused the process in some way. Should your bankruptcy end, you will no longer be protected by the automatic stay and so you will be at the mercy of your creditors and debt collectors again.
If You File for Chapter 7 Bankruptcy
If you file for Chapter 7 bankruptcy, the trustee will take control of all or most of your nonexempt assets -- if there are any -- sell them, and use what they get from the sale to pay your creditors. Once that has happened, the court will discharge any debts that may remain except for those that the bankruptcy law says cannot be erased, or any debts that you've formally agreed to continue paying according to the terms of your original contracts with the creditors to whom you owe the money. (When you agree to continue paying a debt, you are described as having reaffirmed the debt.) After the discharge, which usually happens about 120 days after your Chapter 7 bankruptcy began -- your bankruptcy will be over.
Read What Can They Take From Me if I File for Bankruptcy? to learn more about exempt and non-exempt assets.
If You File for Chapter 13
After you file a Chapter 13 bankruptcy, you and your attorney will prepare a reorganization plan. The plan will detail exactly how you will pay off your unsecured debts (credit card debt and medical debt, for example) during the 3 to 5 years that you will be in bankruptcy. Most likely you will pay less than the full amounts that you owe on those debts.
Although you can reduce the amounts that you must pay on most unsecured debts, you cannot do the same thing when it comes to your secured debts – your mortgage or car loan, for example. If you want to hold on to those assets, you must pay the full amounts that you owe on them.
However, while you are in Chapter 13, you can catch up on any missed mortgage payments through your plan, although you will have to stay current on your mortgage payments at the same time. Also, if you are behind on your car loan, you can put the entire loan balance in your plan and you will get title to the vehicle once you’ve completed your plan.
Your creditors will have an opportunity to review your plan and object to aspects of it and you may be required to revise the plan before the court will approve it. Once that happens, you’ll be responsible for living up to all of the plan’s requirements while you are in bankruptcy, and you'll be protected by the automatic stay as long as you do.
If you believe that you are going to have problems living up to the terms of your plan once you’ve begun paying on it, let your attorney know right away. You may be able to modify the plan.