Personal bankruptcy occurs when debtors are unable to keep up with their financial responsibilities. This can be due to a loss of income, health problems, divorce, or death of a spouse, parent or child. Personal bankruptcy can be caused simply by the debtor overextending their credit and living beyond their means.
Personal bankruptcy is a scary and demeaning financial situation for the debtor regardless of the cause. It is best to contact an attorney when considering filing for bankruptcy. The attorney will set up a consultation to review the debtor's financial information.
During the consultation the personal bankruptcy attorney will review the debt to income ratio. They will place a value on personal property and determine equity in any real estate owned by the debtor. To file personal bankruptcy the debtor will be required to show proof of income and debts, previous tax returns and provide financial statements.
Once the information is reviewed, the attorney will inform the debtor if Chapter 7 or Chapter 13 bankruptcy should be filed. Once the appropriate bankruptcy chapter is determined, the attorney will file a petition on behalf of the debtor with the Bankruptcy Court.
When filing Chapter 13 of the personal Bankruptcy Code, debtors must have adequate disposable income to repay their creditors over time. The amount of disposable income is used to determine if the debtor will be able to make the payments required under Chapter 13 personal bankruptcy.
If the debtor is unable the repay debts using Chapter 13 Bankruptcy, the personal bankruptcy petition will be filed under Chapter 7. Chapter 7 Bankruptcy requires total liquidation of all assets including real estate, automobiles, recreational vehicles and other valuables. Any property which is not exempt under Chapter 7 Bankruptcy Code will be sold through a Trustee to repay creditors.
The debtor must complete financial counseling through an approved credit counseling agency prior to attending the personal bankruptcy 341 meeting. The 341 meeting is also known as the Meeting of the Creditors.
During the 341 meeting any creditor with a secured interest, or believes they have been defrauded, states their claim to the Trustee. The Trustee reviews the information provided by the debtor and creditors at the 341 meeting of a personal bankruptcy case.
After the 341 meeting for Chapter 7 personal bankruptcy, the debtor must complete a second credit counseling course. Once the course is complete the debtor will receive bankruptcy discharge papers by mail.
If filing Chapter 13, a confirmation hearing is held. The confirmation hearing is where the Bankruptcy Court accepts or rejects the debtor’s repayment plan. Once the repayment plan is approved by the Bankruptcy Judge, the debtor must begin paying Chapter 13 payments within 30 days.