What Happens After You File Bankruptcy?

What Happens Now?

When a debtor files for bankruptcy, there are a couple of changes that take place according to bankruptcy law. As discussed below, some changes affect the actions of creditors, and other changes affect the debtor.

What Happens Immediately?

Immediately upon the filing of a bankruptcy petition with the court, the "Automatic Stay" is put in place. The purpose of the "Automatic Stay" is to stop all creditors from taking any action to collect on a debt. This means that all creditors must stop the following actions:

  • Phone calls from creditors and collection agencies must stop
  • Wage garnishments must stop
  • Lawsuits must stop
  • Repossessions must stop
  • Foreclosure must stop

The second effect of filing bankruptcy is that the debtor no longer needs to pay debts that the debtor does not want to keep, such as credit card, medical and personal loan debts. When the debtor has debts which the debtor wishes to keep, such as a car loan or home, the treatment of these debts depends on which chapter the debtor files. In Chapter 7, the debtor must keep the payments current in order to keep the property secured by the loan. In Chapter 13, the debtor does not need to be current on the loan and is allowed to create a "Plan" to pay the past-due payments over the next 36-60 months. These payments generally start within 30 days of the date of filing the bankruptcy case.

What Happens If A Creditor Doesn't Stop Calling?

The law requires that creditors stop all collection activity upon the filing of a bankruptcy petition by a debtor, or obtain permission from the court to continue the collection activity. If a creditor continues to conduct collection activities after the debtor files the bankruptcy petition without permission from the court, the creditor is subject to a lawsuit by the debtor. What does this mean? This means that the debtor may sue the creditor for a violation of the law. If the conduct is egregious enough, the court will award the debtor a substantial amount of money.

How Does a Creditor Get Permission To Continue Collection Activities?

Some creditors will want to continue their collection activities after the bankruptcy case is filed. The most common situation where this occurs is when the debtor files Chapter 7 and the bank is foreclosing on the residence. Because Chapter 7 does not provide for repayment to the bank of the past-due payments, the bank will want to continue foreclosing in order to take possession of the property and resell it. This process is very straight forward and the court generally grants the request in these situations. However, other creditors won't have such an easy time getting the court's permission to continue collection activities. For example, the plaintiff in a lawsuit over a car crash is unlikely to obtain permission from the court unless the plaintiff can show that a judgment against the debtor is not dischargeable in bankruptcy. These situations generally only occur when alcohol or drugs were involved in the car crash.

What Steps Must Be Completed After Filing?

After the case has been filed, the debtor completes the second credit counseling course and attends a trustee hearing. After attending the trustee hearing, Chapter 7 debtors wait for the court to issue the formal discharge. Chapter 13 debtors will attend an additional hearing before a judge to have the Chapter 13 "Plan" approved. Once the plan is approved, the debtor completes the payments as defined in the "Plan." After all of the payments have been made, the court will issue the formal discharge.

If You Have More Questions

Please contact us if you have more questions or are ready to move forward and start the process of becoming debt-free. Remember, we are here to help you resolve your debt problems, so call us now!

(949) 954-7568