What Happens After Bankruptcy?
Bankruptcy is aimed at giving you a second chance; a fresh start with your finances. But not knowing what happens after you file for bankruptcy can be scary. This article outlines what happens after you file for Chapter 13 and Chapter 7 bankruptcy, and what happens after your bankruptcy case is finalized.
What Happens After You File for Bankruptcy?
The following things will happen after you file for bankruptcy:
A Trustee Will Be Assigned to Your Case
Once you file, a bankruptcy trustee will be assigned to your case. This trustee will be in charge of administering your bankruptcy filing. In general, the trustee will either:
- Oversee the liquidation of assets in a Chapter 7 case, or
- Oversee the repayment of debts in a Chapter 13 case.
You Will Attend a "Meeting of Creditors"
The first thing the trustee will do will be to call a meeting of creditors. This is also called the 341 creditors meeting. During this meeting, the trustee will ask you, under oath, about your assets and debts. Creditors can attend this meeting and ask you questions. But usually, it will be just you and the trustee.
An Automatic Stay Will Stop Debt Collection
Filing for bankruptcy will trigger the automatic stay. The automatic stay will ensure that creditors will not try to collect from you while your case is pending. What this means is they can't contact you to collect on debts like credit card debts and other types of unsecured debts. The automatic stay will also stop the garnishment of your wages.
You Will Attend Financial Management Courses
Before filing for bankruptcy, you took a credit counseling course. After you file for bankruptcy, you will need to take another course that can help you after your debts are discharged through the bankruptcy process. It is only after you complete these courses that the bankruptcy judge will give you a debt 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 will get to keep many of your assets like some household items, your car, and items of clothing. You can learn more about this on our page about bankruptcy exemptions.
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.
Your Debts Will Be Discharged
In both Chapter 7 and Chapter 13 cases, you will get a discharge order from the bankruptcy court. This order stops creditors from taking any collection actions against you in the future.
What Happens to Secured Debts?
A secured debt is a debt a creditor secures with an asset. A mortgage can be a good example here. 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 comply with 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, however, keep the property if you make an agreement with the lender to continue making monthly payments on your loans.
In Chapter 13 cases, you can retain your property if you continue to make payments through the Chapter 13 payment plan.
What Happens After Bankruptcy?
Once your case is finalized, you will get a discharge of most of your debts. Your creditors are also legally prohibited from trying to collect any outstanding debts from you. Read on to see some of the common questions on what happens after a bankruptcy discharge.
Will You Be Debt Free? Will Bankruptcy Discharge All Debts?
No. Bankruptcy will not discharge all your debts. What can be discharged will vary based on the type of bankruptcy you choose. But in general, the following debts will not be discharged after bankruptcy:
- Student loans
- Certain tax debts
- Child support and alimony obligations
- Certain debts from criminal fines
How Will Bankruptcy Affect Your Credit Score?
A bankruptcy filing will lower your credit score and may 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 7 years if it is a Chapter 13 bankruptcy.
However, exactly how much a bankruptcy will affect your credit score will depend largely on your financial situation before filing bankruptcy.
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 immediately after your bankruptcy case is finalized. But by rebuilding your credit, you will have options in the future. For instance, 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 simply 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 you need to have extensive knowledge of the bankruptcy laws and procedures if you are thinking of filing your bankruptcy petition without an attorney. As bankruptcy has a range of long-lasting consequences, it may be best to speak to a bankruptcy lawyer to guide you based on your particular situation.