What Happens After Filing Bankruptcy?

October 14, 2010

Perhaps the hardest part of bankruptcy is filing it, as those who do often struggle with damaged pride and embarrassment at what their neighbors might discover. But how you’ll feel after filing for bankruptcy depends on which type of bankruptcy you file: Chapter 7 or Chapter 13. Chapter 7 bankruptcy results in the liquidation of non-exempt possessions and investments to pay one’s creditors, whereas Chapter 13 bankruptcy allows the filer to pay on his or her debts for a certain period of time (typically 3-5 years) under affordable arrangements. Below, we describe what you can expect directly after filing for Chapter7 and Chapter 13.

After Filing Bankruptcy Under Chapter 7

Once you file for Chapter 7, collection activities on your debt will cease. If you’re creditors don’t contest your exemptions, your non-exempt assets will be turned over to a bankruptcy trustee for liquidation. Upon turning over your non-exempt assets to the trustee, you will likely be informed that you cannot give away, sell, or throw away any possessions without the bankruptcy court’s permission.

After Filing Bankruptcy Under Chapter 13

When you file for Chapter 13, collection activities on your debts will cease. If your petition is accepted, you will commence paying on your debt roughly one month from the petition’s acceptance date. Because being accepted for Chapter 13 means that your case has passed the Best Interest of Creditors Test, you can expect to pay your creditors as much as they would receive from the liquidation of your assets under Chapter 7.

Your monthly payments will be set according to the Best Efforts Test, which states that debtors must provide unsecured creditors an amount equal to the debtor’s disposable income multiplied by 36 in the case of debtors whose income falls below the state median income, and by 60 for debtors whose income is above the state median.

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