Bankruptcy is the
legal way for people or businesses who owe more money than they can pay right
now (a "debtor") to either work out a plan to repay the money over
time under Chapter 11, 12 or 13, or for most of the bills to be wiped out
("discharged") as in a chapter 7 case. While the debtor is either
working out the plan or the trustee is gathering the available assets to sell,
the Bankruptcy Code provides that creditors must stop all collection efforts
against the debtor. When the bankruptcy petition is filed, you are immediately
protected from your creditors. This
“stay” allows the debtor some time to take a breath and to gain insight on
the breath of their financial situation.
The case begins with the filing of a petition in federal court.
A judge and U.S. trustee is assigned and the process begins.
A plan is then filed with the court defining all outstanding debts,
creditors, and the means by which the debtor will repay these debts and in
what percentages. If a chapter
7, the plan notes all creditors to be wiped-out.
The debtor’s attorney notifies all creditors and requests a proof of
claim. The proof of claim allows
the creditors to protect their interests in the proceedings.
The trustee sets a creditors meeting in which the debtor and creditors
meet to review the plan and raise any objections.
Should all parties approve the plan, it will be set for a confirmation
hearing. A federal judge
presides over the confirmation hearing and should no objections be raised
at or before the hearing then confirmation is granted and the plan is finalized.
The bankruptcy process can take anywhere between 60 and 120 days.
It is time consuming and not easy but once the plan is confirmed, the
debtor has a new workable means by which to return their financial situation
to a more normal status.
