Hidden Pages

A Description of the Bankruptcy Process

NOT ADVERSARIAL: Bankruptcy is not an adversarial-type proceeding in which the debtor must present evidence, persuade a jury, face a prosecutor, hire a private investigator or otherwise justify bankruptcy protection. The bankruptcy court is open to all in need of financial protection and who need relief from their creditors. The process typically is much more like an administrative proceeding than a trial. However, under certain circumstances, bankruptcy courts do hold trials in contested cases.

HONESTY: However, the bankruptcy court does expect the debtor to be transparent in his or her financial dealings and make full disclosure to the court. As a result, a bankruptcy proceeding tends to be a paper-driven proceeding; and there is a burden upon the debtor to provide an enormous amount of financial information and history.

LISTING CREDITORS: First, the court wants to know the names and addresses of all creditors  -  including family members and friends who are owed money by the debtor; and creditors which the debtor intends to keep paying (“reaffirmation” of the debt). All creditors - every single one - is entitled to receive notice of the bankruptcy filing. This includes creditors of all classifications: secured, unsecured, and priority creditors (see Classifying Different Creditors).

LISTING ASSETS: Also, there must be a listing of all assets of the debtor. This includes normal assets such as homes, cars, bank accounts, clothing, household goods, tools, jewelry, hobby collections, musical instruments and antiques. However, it also includes any type of claim that might have financial value in the future, such as retirement plans, inheritances, personal injury claims, other legal claims, accounts receivables, property settlement agreements, patents, and royalties, as well as interests in businesses, partnerships, corporations and limited liability companies.

INCOME: A debtor must provide the last two years of income tax returns and the last six months’ of pay stubs or other proof of income. The debtor must list all sources of income and provide pay invoices from each source.

LIVING EXPENSE BUDGET: The debtor must also provide a living expense budget for the future, excluding all payments on debts that will be discharged in the bankruptcy case.

STATEMENT OF HISTORICAL FINANCIAL EVENTS: Included as part of the bankruptcy filing is a questionnaire about past financial events. This includes use of previous names or aliases; previous addresses; casualty losses (losses from fire, theft, gambling); pending lawsuits; existing judgments and convictions; previous business enterprises; past sales of cars or houses or other assets;  recent garnishments or seizures of property; payments to attorneys.

FINANCIAL DEALINGS WITH OTHERS: The debtor must also disclose payments made to creditors within the last 90 days totaling more than $600 (“preferences”). This includes “fund balance transfers.” Also, payments to family members or other “insiders” totaling more than $600 within the last year (“insider preferences”) must be disclosed. The debtor must list all co-signers and all co-obligors on any debt. The court also requires the debtor to disclose any bank accounts that have been recently closed.

AFTER FILING: The Bankruptcy Court mails or electronically notifies all creditors of the bankruptcy filing. The notice also includes the time and place where the debtor will be examined under oath by a bankruptcy trustee (“the meeting of creditor”). All creditors may attend and will be given the opportunity to make relevant inquiry about assets of the debtor. This hearing held about four weeks after the filing of the case. Testimony is given under oath and is recorded.

Typically, at the end of the meeting of creditors, the trustee in a Chapter 7 case will make a determination if there are assets to be liquidated for the benefit of the creditors; and in a Chapter 13 case, whether the debtor’s Plan will be subject to an amendment or an objection.

DISCHARGE: In a Chapter 7 case, the Court will enter a discharge of debts about 60 days after the hearing or meeting of creditors. In a Chapter 13 case, normally the discharge is entered after the successful completion of the Plan (between 36 and 60 months in length). 

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