The bankruptcy process begins long before an individual files a bankruptcy petition. It is a long process that requires a lot of documentation. There are two different options for bankruptcy, chapter 7 and 13.
There is a strict process that is followed for these cases. The first thing that occurs is the means test. The means test helps the court decide the present financial status of the debtor. It considers each and every kind of income and liabilities of the debtor. After this, The courts determine how to pay back the creditors. The debtors’ income is compared to the states median income where the debtor resides. After all this, one of the two bankruptcy options is selected.
The process of bankruptcy requires a lot of paperwork. The court process begins with the petition filing. The petition needs to be supported with all the financial information about the debtor. This information is filed in separate specific forms. Debtors will also need to show documentation regarding tax returns, credit counselor certificates and much more.
The bankruptcy petitions are filed under two different articles depending on the present financial condition of the debtor. Under chapter 7, the court provides a trustee to conclude the whole process. The trustee then fixes a meeting with the creditors. The trustee then takes possession of the debtors’ property and cash. The property is then liquidated and the creditors are paid evenly from that profit. Only after that is the debtor declared legally debt free. The creditors are then restricted from further action against the debtor.
Under Chapter 13, the debtor is provided with the opportunity to pay back the creditors within a certain period. The debtor must provide a debt repayment plan to the bankruptcy court. Once the plan is approved the debtors pay the money to the trustee and the trustee then distributes the money among the creditors.
Last Updated on : 10th July 2013