Some basic questions about bankruptcy

This articles attempts to answer some common questions regarding individual bankruptcy. How does it get started?

Bankruptcy proceeding is usually started when a debtor or debtors file a petition at the bankruptcy court in the district they are domiciled. Filing the petition will put an 'automatic stay' on all other proceedings against the debtor by creditors.

Debtor must also submit lists of all the creditors, assets, and income, and in addition submit a plan of> repayment (in cases other than chapter 7), with or within a short time of, the petition.

Under what chapter should the debtor file for bankruptcy?

This depends on what the debtor wants to do. If he wants a prompt discharge of debts and is willing to let most his assets be liquidated to pay off creditors, he should file under Chapter 7. If he wants to consolidate and pay off his debts using his income while retaining the use of his assets, he should file under Chapter 13. Court will decide whether he is allowed to proceed according to that chapter.

Who is the trustee?

Since bankruptcy involves lot administration work away from court, the bankruptcy judge appoints a trustee to administer the bankrupt estate and coordinate the interaction between the creditors and the debtor. The trustee will separate the creditors according to claims, into various classes, with differing priorities. He or she will also organize the meeting between the creditors and the debtor, called the '341 meeting', where the debtor can be questioned under oath regarding his financial position. In Chapter 7 cases he will transfer all non exempt assets of the debtors to an estate, which he will liquidate. Then he will distribute the proceeds among the creditors. In the case of chapter 13, he will oversee the implementation of the court approved repayment plan and will distribute the payment received from the debtor among creditors.

Are all debts discharged?

No. Certain types of debts are not discharged. They include taxes, fines, child support, and alimony, among others. Secured debts have to be paid regardless of the bankruptcy proceedings. Otherwise the secured creditor, after obtaining court's permission, can take the collateral.

What assets are exempt?

The debtors can choose between the federal exemptions as stated in United State Bankruptcy Code or State exemptions. The choice must be made after consulting a Bankruptcy Attorney and after careful consideration. Usually exempted assets involves home equity, car, clothing, furnishings, and other such personal effects. These assets are made exempt so that the debtor can move on with his personal life and not be subject to punitive action by the creditors.



What is the effect on debtor's spouse?

When only one spouse files for bankruptcy other spouse's liability on joint debts will remain. Ownership of assets will be determined according to the marital property law operating in the State. If the the common law is applied only jointly held properties are taken in to consideration, in the case of community property law all assets acquired after marriage are considered to be equally owned.

Will the debtor be able to get credit in the future?

Yes, once the debtors has received a discharge he is free of any personal liability to those debts and most debtors are able to get fresh credit. Whether a creditor will advance new credit is however a complex decision involving other factors. The bankruptcy filing will be on record for ten years.

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Tim S

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