Bankruptcy is based on federal law that allows entities such as individuals or corporations to be relieved from their debts and obligations. The goal of bankruptcy law is to permit the debtors to start anew in their financial concerns. A bankruptcy means that the debtor will no longer be pursued by creditors to pay the debts that have been discharged.
After a debtor files a bankruptcy petition, the court will send a notice to the creditors about the petition and the date for the First Meeting of Creditors. This event is a hearing that usually occurs within 20 to 40 days after the filing. The debtor should be present and the bankruptcy trustee who is selected by the United States Trustee will preside. During the First Meeting of Creditors, the trustee will pose questions to the debtor regarding the bankruptcy papers, debts, assets and other important details regarding his financial situation.
There are two kinds of bankruptcy that an individual may file. In a Chapter 7 bankruptcy, the debtor has to reveal to the court all debts and assets and transfer control of non-exempt properties to the bankruptcy trustee who sells these properties and distributes the proceeds to the creditors. After this, the court will usually issue an Order of Discharge within 60 to 75 days after the First Meeting of Creditors.
In a Chapter 13 bankruptcy, the debtor promises to repay creditors in installments for a period of three to five years. In this situation, the bankruptcy court will issue an order to confirm the debtor’s Chapter 13 repayment plan after he has complied with all of the requirements. During this period, creditors would not be able to continue or begin collection efforts. The Order of Discharge in this situation will only be issued by the court after the debtor has completed the repayment plan. It should be noted that partnerships and corporations are not allowed to file for Chapter 13. The debtor must be residing in the U.S. and has a regular income source. His unsecured debts must be less than $336,00 and his secured debts must be less than $1,010,650 on the date of filing.