In 1978, the United States Constitution has enacted uniform laws on the subject of bankruptcies under what is called as the Bankruptcy Code. This code is the federal law that governs all bankruptcy cases in the state. The Federal Rules of Bankruptcy Procedure—often called as the Bankruptcy Rules—encompass the procedural aspects of the bankruptcy process. This rules contains a set of official forms for use, and set forth the formal legal procedures for dealing with the debt problems of individuals and businesses.
Six basic types of bankruptcy cases are provided for under the Bankruptcy Code, and are traditionally given the names of the chapters which describe them. The most common of which is the Chapter 7 bankruptcy case. A Chapter 7 bankruptcy case is a court-supervised procedure which a trustee takes over the assets of the debtor’s estate, reduces it to cash, and makes distributions to creditors, subject to the debtor’s right to retain certain exempt property and the rights of secured creditors. The following are the steps to be taken when one decides to file for bankruptcy.
Complete a credit counseling program. One must receive credit counseling during the six-month period prior to filing for Chapter 7 bankruptcy. The counseling is usually from an agency approved by the United States Trustee’s Office. The program entails a fee, however, it may be reduced or waived upon meeting certain low income requirements. This is important since a filer’s particular situation may influence the timing of filing for bankruptcy. In some circumstances, it may be better to delay filing bankruptcy.
File petition and other forms. There is a packet of forms to be filled out when filing a bankruptcy case. This includes the bankruptcy petition commonly known as the Voluntary Petition, a number of schedules listing financial information, and a form listing income and expenses. These forms are needed in passing the Chapter 7 means test. One must also claim his property exemptions in the forms, which allows him to keep certain property in bankruptcy under state and federal laws.
A trustee takes over the case. The court then assigns a trustee to handle the bankruptcy case after all the forms have been accomplished. The trustee’s job is to review the paperwork and take the nonexempt property to distribute to the creditors, and look to see if there has been improper transferring of any property. The trustee also assures that the creditors are paid as much as possible, and is paid depending on how much he or she gets for the creditors.
Meeting of creditors is held. Also called a 341 meeting, the meeting with the creditors is the time when you will have to answer questions about your finances and bankruptcy forms, under oath, as asked by the trustee or any creditor who show up. In a vast majority of cases, creditors do not even show up for the meeting.
Discharge. The bankruptcy trustee and the creditors are given 60 days in which to object a discharge, or to the discharge of any particular debt. They must then be able to file a lawsuit within the 60-day period. If otherwise, the court will issue an order discharging your unsecured debts. A debtor education course should then be completed, taking about several hours to complete online. Upon discharge, you no longer owe your dischargeable, unsecured debts. Creditors no longer have any legal rights to seek payment.
The bankruptcy process is complex and relies on legal concepts. With due process and adherence, Chapter 7 bankruptcy procedure is usually the best choice, relieving you of your debt, and making a fresh start at life possible.