What Happens After You File for Bankruptcy?
After you file for bankruptcy, the process begins with the court assigning a trustee. You’ll attend a brief 341 meeting of creditors, and an automatic stay will immediately stop most collection efforts and wage garnishments. Under a Chapter 7 bankruptcy, the trustee may sell nonexempt property to pay creditors. With a Chapter 13, you’ll make payments under a court-approved plan, allowing you to keep property if you stay current. When the judge issues a discharge, eligible debts are wiped out and creditors can no longer collect on them. Certain obligations, like child support, many types of taxes, and most student loans, typically remain. A bankruptcy appears on your credit report for seven to 10 years, but you can begin rebuilding credit with on-time payments and responsible use of new or secured credit.
Bankruptcy gives you a chance to start over with your finances. Before you file, it’s a good idea to know what will happen once the bankruptcy process finishes.
This article outlines what to expect after you file for either Chapter 13 and Chapter 7 bankruptcy, and what happens when you receive your bankruptcy discharge.
What Happens After You File for Bankruptcy?
The following things will happen after you file for bankruptcy:
The Court Assigns a Bankruptcy Trustee
Once you file, a bankruptcy trustee is assigned to your case. This trustee is in charge of administering your bankruptcy filing. Depending on how you filed, the trustee will either:
- Oversee the liquidation of assets in a Chapter 7 case
- Oversee the repayment of debts in a Chapter 13 case
While both are intended to help you recover financially, they operate in vastly different ways.
You Will Attend a”Meeting of Creditors”
At the meeting of creditors, also called the “341 creditors meeting,”the trustee will ask about your assets and debts. Creditors can attend and inquire about your financial status, but in most cases, creditors will not be present at this meeting.
An Automatic Stay Will Stop Debt Collection
Filing for bankruptcy will trigger an automatic stay. The stay stops most collection attempts, lawsuits, and wage garnishments. Some actions are excluded from a stay, including certain criminal, tax, or domestic support proceedings. Secured creditors can ask the court to lift the stay.
During the stay, you must stay current on domestic support obligations. To keep secured property like a home or car, you’ll need to either stay current or reach an approved arrangement.
You Will Attend Financial Management Courses
Before filing for bankruptcy, you’ll be required to take a credit counseling course. After filing, you’ll need to take a debtor education course from an approved provider listed by the U.S. Trustee Program/bankruptcy administrator. You must complete all the classes before the judge will issue a discharge.
The Trustee May Sell Some of Your Property
If you filed Chapter 7, the trustee may liquidate some of your non-exempt assets and distribute them to creditors according to the priorities stated in the bankruptcy laws. You may be allowed to keep some of your assets like household items, your car, and items of clothing. This depends on exemptions, equity, and loan status. You can learn more about this on FindLaw’s page about the bankruptcy exemptions for each state.
Exemptions are set by state law and the federal Bankruptcy Code, depending on your state. Review your state’s bankruptcy code before filing to see what the trustee can liquidate in your case.
You May Begin a Repayment Plan
With Chapter 13, you must follow your repayment plan and pay off your debts within the specified time to get debt relief. You also have to pay non-dischargeable debts like child support and alimony in full.
The Judge Issues a Discharge Order
In both Chapter 7 and Chapter 13 cases, you will get a discharge order from the bankruptcy court. The discharge order eliminates your personal liability for dischargeable debts and leaves you with a clean slate. Liens may survive, and non-dischargeable debts remain.
What Happens to Secured Debts?
A secured debt is a debt a creditor secures with an asset. A mortgage is a good example. When you buy real estate and finance that house with a bank loan, you are giving the bank the right to initiate foreclosure proceedings if you fail to follow the mortgage terms.
In a Chapter 7 case, creditors can foreclose the property even after you file for bankruptcy if you don’t pay your secured debts. You can keep the property by making an agreement with the lender to continue monthly payments.
In Chapter 13 cases, you can retain your property if you continue to make payments through the Chapter 13 payment plan.
What Happens After the Bankruptcy Discharge?
After the discharge order, your creditors can no longer collect on any outstanding debts from you. The type of bankruptcy you file determines what types of debts the discharge clears. In a Chapter 7, you can usually discharge:
- Credit card debts
- Unpaid medical bills
- Personal loans
- Past-due utility bills
- Old court judgments and some income tax debts (if they meet strict timing and other requirements)
Chapter 13 may discharge some of the debts not dischargeable in Chapter 7, such as certain property settlement obligations from divorce and some debts incurred to pay non-dischargeable taxes. Other types, like fraud-based debts, domestic support obligations, certain taxes, and DUI-related injury debts, cannot be discharged through Chapter 13.
Will You Be Debt Free? Will Bankruptcy Discharge All Debts?
No. Bankruptcy does not magically wipe the slate clean and discharge all your debts. The discharged debts depend on the nature of the bankruptcy. In general, courts cannot discharge these debts:
- Student loans (unless you prove undue hardship)
- Certain tax debts
- Child support and alimony obligations
- Certain debts from criminal fines
Other debts may also fall under this heading.
How Will Bankruptcy Affect Your Credit Score?
A bankruptcy filing will lower your credit score. It can stay on your credit report and in public records for some time. Bankruptcy will stay on your credit for 10 years if you filed for Chapter 7 and seven years if it is a Chapter 13 bankruptcy. How a bankruptcy will affect your credit score depends on your financial situation before filing.
You can take steps to rebuild your credit such as:
- Staying current on your bills
- Getting a new credit card or a secured credit card
- Trying not to borrow more than you can repay
Keep in mind that filing for bankruptcy might do more to help your credit than harm it. Consider what will happen if you continue to hold the debt and miss payments.
Can You Get a New Car or Buy a House After Bankruptcy?
Getting a car loan or a mortgage will be difficult for a while after your bankruptcy case ends. Over time, you can rebuild your credit by proving you can cover your expenses. Getting a secured credit card or applying for installment loans may be good options for you to start building your credit.
What If You Get Into Debt Again?
Depending on the timing between discharges, you may be able to file for bankruptcy again. Here is the timeline:
- From Chapter 7 to another Chapter 7: Eight years
- From Chapter 13 to another Chapter 13: Two years
- From Chapter 7 to Chapter 13: Four years
- From Chapter 13 to Chapter 7: Six years
If you don’t qualify for another bankruptcy or you don’t want to file again, you also have other options to becoming debt-free.
Still Have Questions? Speak to a Bankruptcy Attorney
Bankruptcy gives you a fresh start, but it can be complicated and any mistakes can haunt your credit for a long, long time. Unless you have extensive knowledge of the bankruptcy laws and procedures, it’s a good idea to consider consulting with an attorney before filing your bankruptcy petition. Given the potential long-lasting consequences, it may be best to speak to a bankruptcy lawyer to guide you based on your particular situation.
Additional Resources:
- Bankruptcy Overview
- Is Bankruptcy a Good Idea for You?
- Will Filing for Bankruptcy Cause an IRS Audit?
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