Bankruptcy Filing: be Aware of Legal Nuances

By: Lesley Lyon

Anyone person who is a bankrupt is usually unaware of the nuances of legal process involving bankruptcy. Before filing for bankruptcy, the person must collect all the personal financial informations that include a list of all secured and unsecured debts, tax returns for the last 2 years and deeds to any real estate and any other loan documents.

The first and foremost step to be taken by a bankrupt person is to file for bankruptcy through the bankruptcy court, which is a legal process. The next step is to complete the bankruptcy forms called the "schedules" wherein the debtor should describe his or her current financial status and recent financial transactions. The debtor has to choose between chapter 7 and 13. For filing chapter 13 bankruptcy, a proposed repayment plan must be submitted with the petition. Filing bankruptcy can be done by talking to people who have technical information about bankruptcy or better still to visit a bankruptcy lawyer who can guide through the complicated procedure of filing for bankruptcy. The lawyer should be provided with all the personal information to put together and file the voluntary petition.

Once this process is over, the bankruptcy court assigns a trustee to see to it that all the informations are collected and that they are accurate. The next step is to notify the creditors that the debtor is filing for bankruptcy so that they stop all actions they might be taking up against the debtor to get the payments. After this, the next procedure is meeting the various persons who are involved in the bankruptcy case along with creditors and if possible, their lawyers.

An automatic stay goes into effect immediately upon filing the petition with the bankruptcy court which prevents the creditors from making direct contact or staking a claim to any of the debtor's property from the date of filing. Approximately, a month after filing the bankruptcy petition, the trustee will call the first meeting of creditors, which is known as 341 meeting that requires the presence of the debtor. It is an open opportunity for creditors to question and the debtor is required to respond in full faith.

A creditor must file a proof of claim within 90 days after the first date set for the meeting of the creditors. If there is an excess asset after all the claims are settled, the court may grant an extension of time for filing of claims during the 90-day period. Objections if any are resolved by a negotiation between the debtor and the counsel of the debtor and the creditor. A judge will intervene, if necessary, when a compromise cannot be reached. If there are no hiccups, the debtor receives a notice from the court that the bankruptcy is discharged within 4 to 6 months.

Student loans guaranteed by the government are not dischargeable, that is the student continues to be liable for the payment even if he files bankruptcy. The debtor's goal is to have as many debts discharged as possible. The ten categories of debts excluded from discharge are divided into 2 areas: debts that are not dischargeable due to the wrongful conduct of the debtor and debts that are dischargeable due to public policy.

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