Clark & Washington

What Happens to Debt When I File For Bankruptcy?

Bankruptcy is intended to provide you with a second opportunity with your money. When you’ve gotten so far over your head with debt, declaring bankruptcy is a way to begin anew. But before entertaining the idea of bankruptcy to solve your financial worries, it helps to understand a little about what happens to debt when you file for bankruptcy.

The way your debt is handled after bankruptcy depends on whether you file for Chapter 13 or Chapter 7 bankruptcy, as well as what happens once your case is completed. The attorneys of Clark and Washington can help you with your bankruptcy concerns.

Following your bankruptcy filing, the following will occur:

Your Case Will be Assigned to a Trustee

A bankruptcy trustee will be appointed to your case once you file. The trustee will:

In a Chapter 7 case, supervise the liquidation of assets; in a Chapter 13 case, supervise the repayment of debts.

You’ll be Invited to a Meeting of Creditors

The trustee will convene a meeting of creditors as soon as possible. The creditors meeting is also known as the 341 creditors meeting. The trustee will question you about your assets and obligations under oath during this meeting. Creditors are welcome to attend and ask you questions. In most cases, though, it will simply be you and the trustee.

Debt Collection Will be Halted by an Automatic Stay

The automatic stay is triggered when you file for bankruptcy. Creditors are not permitted to try to collect from you while your case is underway because of the automatic stay. This means they won’t be able to approach you to collect debts such as credit card bills or other unsecured obligations. The automatic stay will also prevent your salary from being garnished.

You’ll Take Courses in Financial Management

Even if you took a credit counseling course before filing for bankruptcy. Following your bankruptcy filing, you will need to enroll in another course that will assist you once your debts have been dismissed via the bankruptcy procedure. The bankruptcy court will only grant you a debt discharge if you finish these courses.

Some of Your Property May be Sold by the Trustee

If you filed for Chapter 7, the trustee may sell some of your non-exempt assets and distribute proceeds to creditors in accordance with the bankruptcy rules’ priorities. However, you’ll be permitted to retain many of your personal and essential belongings, including some furniture, your automobile, and clothing.

You May Start a Repayment Plan Now

To achieve debt relief under Chapter 13, you must stick to your repayment plan and pay off your obligations within the time limit. Non-dischargeable debts, such as child support and alimony, must also be paid in full.

Your Debts Will be Forgiven

The bankruptcy court will issue a discharge order in both Chapter 7 and Chapter 13 cases. This injunction prevents creditors from pursuing you in the future for debt collection.

What Happens to Debts That Are Secured?

A secured debt is one that is secured by an asset. A mortgage is a good example. When you purchase real estate and finance it with a bank loan, you give the bank the right to foreclose on your home if you fail to meet the conditions of the loan.

If you don’t pay your secured obligations in a Chapter 7 case, creditors might seize your home even after you file for bankruptcy. You can, however, keep the property, provided you agree to continue making monthly payments on your loans with the lender.

If you continue to make payments under the Chapter 13 payment plan, you will be able to keep your property.

Is Bankruptcy a Way to Get Rid of All Debts?

No. Bankruptcy does not wipe out all of your debts. Depending on the form of bankruptcy you choose, you may be able to dismiss some debts. The following debts, however, will not be canceled in bankruptcy:

Filing for bankruptcy is a serious action that should only be undertaken with the counsel of an experienced attorney. Contact Clark and Washington today for assistance with your bankruptcy filing.

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