The process of filing bankruptcy is extensive.  Gathering documentation, taking educational classes and typing a petition are all necessary steps for a case to be filed in court.  Once all this work is submitted, creditors must stop all collection efforts.  A bankruptcy petition is created by an attorney to provide a detailed destruction of the filers’ income, assets, budget, debts and recent financial history.  Many people think that if a debt will survive the bankruptcy, whether by choice or not, that it doesn’t go on the petition.  This is not true, all creditors are listed whether their debts will be discharged or not. 

 

Several forms of documentation are filed with the petition;

• 6 months of pay stubs
• Proof of FMV of assets
• Proof of lien on house and car
• Proof of insurance of financed possessions
• Retirement account statements
• Whole life insurance policies
• Bank statements
• Credit counseling certificate

Not every person who files bankruptcy has to provide the same information, and not all documents are submitted at the same time.

Two courses are required in bankruptcy.  The first, the credit counseling course, is taken before the case is filed.  Second, the debtor education course is done soon after filing.  These courses can be done over the telephone or on the internet.

Between one and two months after a case is filed the debtor must appear at the 'meeting of creditors’.  Here, a bankruptcy court trustee asks questions under oath about assets and liabilities.  Creditors have the right to appear at the hearing although they rarely do.  If a creditor wants to file an objection in a case they don't have to appear at this meeting to do so.

At this point, in a chapter 7, the trustee will determine if they have any interest in the debtor’s assets.  If not they will file a 'no asset report,’ abandoning all interest.  Pay stubs are reviewed in the hearing to verify the debtor qualifies for the type of bankruptcy that was filed.  The trustee could request to see more documentation and issue a deadline for when they want it.

The goal of any bankruptcy is a discharge, which means a case ends successfully.  In a chapter 7 this usually occurs just a couple months after the meeting of creditors.  In a chapter 13 the discharge is issued once all payments have been made, somewhere between 3 and 5 years.  The discharge is a single piece of paper that comes in the mail stating that all opportunity for creditors to object has ended.  This document should be kept by the debtor along with a copy of their petition in case any creditor tries to collect in the future.

Debts that can survive a bankruptcy discharge are taxes, domestic support obligations, educational debts and secured loans.  After the case is closed discharged creditors should report to credit agencies that they are no longer owed money by the debtor.

Once the case closes, rebuilding credit can start immediately.  Reaffirming secured debts puts positive marks on a credit report as they are kept current.  Also "bankruptcy friendly lenders” are available specifically to help someone build credit right after filing bankruptcy.