How Does Bankruptcy Work?

If you are considering filing for bankruptcy relief you should know that the ultimate goal in filing  a personal bankruptcy is to get fresh start by receiving a discharge.

A discharge is basically a forgiveness of the unsecured debt you have and a reaffirmation of secured debt you want to retain.  A discharge can happen pretty quickly through a Chapter 7.

However, if you have to receive your discharge through a Chapter 13,  plan on making payments to some, if not all of your creditors .  The payment you make will depend on a number of factors we can discuss when we meet. 

A Chapter 13 plan can be for a minimum of 36 to a maximum of 60 months, so if the payment amount you think you can afford would take more than 60 months to pay your creditors the court  can not confirm your plan, which means you will have to find a way to make a larger payment (i.e., usually means giving up something you are making payments on like an extra car payment).  No matter which Chapter you qualify for, Chapter 7 or Chapter 13,  the end result is still the same you unsecured debt is forgiven and in the case of a Chapter 13 oftentimes secured debts are also paid in full.

The Means Test Determines Which Chapter You Will File in Most Cases

You must pass the means test in order to file a Chapter 7.  Passing the means test means that your average monthly income over the past 6 months times 12 months to represent the full year, does not exceed what the law makers think should be considered higher than the average for your state.  If your income is lower than the average you are eligible for a Chapter 7, however, if your income is higher than the average you could have to file Chapter 13.  There are a number of expenses you can deduct if that should happen in the means test.  If you take those deductions and they bring you down below the average you may still file a Chapter 7.  On the other hand, you may pass the means test and be eligible to file a Chapter 7, but you may still choose to file a Chapter 13 case for several reasons that I can explain when we talk. If you want to give the means test a try click below. 

Means test

Click here for mean test explanation

After Your Discharge Be Sure NO Lien’s Remain on Unsecured Debt

When you receive your discharge your unsecured debt will be forgiven, but you should be aware that any valid lien will remain in full force unless it is proven to be unenforceable.  For example, a civil judgment will sit on the court’s docket unless you take your discharge to the court and have your case closed because of the bankruptcy.  The judgment is no longer collectable. 

If you have secured debt you must make a decision about how you want to handle that debt.  For example, your home or your car and oftentimes furniture and jewelry have loans on them.  If that is the case those debts have to be paid for in full (oftentimes with interest) regardless of which chapter you file.  Any secured creditor can object to your discharge and move to enforce its lien and recover the property if you fail to make timely payments. They may recover the property, however they cannot recover any deficiency left after they sell the property, as long as you receive your discharge.

What You Should Plan to Provide Me

A quick checklist about how the process works is:

  • I will have to have gather your pay stubs (6 months) and some tax returns (last two years).
  • I want to make sure you have a driver’s license (or other picture ID).
  • I also make sure you have a Social Security Card or original W2 (because if not you will want to order a new one).
  • You will have to take two credit courses, one before you file and one after you file.
  • You need to provide information about all of your assets, liabilities, income & expenses.
  • I prepare your petition, statements and schedules and file them with the court.
  • Once your petition is filed  the “automatic stay” takes effect and any collection efforts by your creditors must cease immediately.
  • With either a Chapter 7 or Chapter 13 you will be attending a meeting of creditors called the 341 hearing.  But not to worry I am there with you every step of the way. Currently due to COVID-19 hearings are held on the telephone or Zoom meetings. 
  • In a Chapter 13 case you may also have to attend a Confirmation Hearing (again by telephone) but that depends upon how responsive you are to when I ask for information and documents, so if you would rather skip that hearing stay on top of your case and my requests. I can’t always tell clients what the Chapter 13 Trustee will ask for so I oftentimes need more data after the 341 hearing.  (For example: They may want a list of things you spent your tax refund on, when certain secured debts will be paid in full if that should occur during your Chapter 13 and so forth).
  • In a Chapter 7 case you may have to turn over your tax refunds for the next year (or part thereof).  Definitely discuss taxes when you call. 
  • In a Chapter 13 case you will begin making payments before your 341 hearing and then by the 25 of each month until completed.
  • Chapter 7 discharge is usually within 6 months.
  • Chapter 13 discharge will be within a few months after your final payment.

Celebrate Becoming Debt Free in the Months Ahead

Contact Me Today

Contact me now and I can help you immediately. I will guide you personally through an otherwise difficult process conveniently and compassionately. If you already have a judgment, garnishment or pending foreclosure I can file your case within hours if needed. You just need to take the class first. Do not let one more unnecessary garnishment come out of your paycheck.  Call today 801-558-2266 or email me at