What you Need to Know About Bankruptcy Court

Bankruptcy Basics

Are you considering bankruptcy? You should know that it is something that usually involves your creditors, a court appointed trustee, and the bankruptcy court system. Most people will also obtain the services of a lawyer because the guidelines and rules of any bankruptcy system can be extremely complex. Additionally, the effects of a filing can be far more destructive if they are not managed by someone knowledgeable in state and federal laws.

Why federal laws? Although state laws will always apply to any bankruptcy, the individual can only file in a federal bankruptcy court. There are 94 federal judicial districts in the United States, and these are able to see Chapter 7, 11, and 13 filings. The entire process occurs before the federal judges presiding in such courts, and all rulings are done by them as well.

Why People End Up In Bankruptcy Court

In general, the bankruptcy laws were created to help those who cannot manage to repay creditors. This tends to “wipe the slate clean” and give them a fresh financial start. Of course, anyone with bankruptcy on their credit history will face challenges when seeking new sources of credit, but the different ways of filing can often be used to limit the amount of damage done. In most states the court requires the individual filing for bankruptcy to receive a “briefing” from pre-approved credit counseling providers before they can officially begin filing their case. This is to ensure that all viable options apart from the bankruptcy filing have been considered or attempted.

How It Works

If you are headed to bankruptcy court, and are an individual rather than a business, it is likely that you will be filing under the Chapter 7 or the Chapter 13 headings. The former is the way in which people with few or no assets will seek to entirely eliminate most of their debts. They will not be able to delete such things as overdue child support or alimony payments, school loans, or fees and penalties connected to crime, but they can eliminate most forms of unsecured debt, and even some debt which uses collateral.

Those filing under Chapter 13 are letting the bankruptcy court know that they would rather restructure their debt or enter into a reformatted payment plan in order to pay creditors in full. This is usually the way that people prevent a foreclosure or serious collection activities. There are three levels of debt in any of Chapter 13 filing, and this can often make the process far lengthier than the Chapter 7 approach.

Regardless of the type of bankruptcy claimed, most debtors will usually be forced to liquidate assets in order to reduce outstanding debts whenever possible. Generally, the court appoints a trustee to oversee this and ensure that no hardship occurs.

Amount of Time in Court

How often will someone need to appear in bankruptcy court? The answer to that question actually varies quite widely. If someone is clever they will obtain the services of a qualified attorney who will usually handle most of the court appearances. There are very specific time lines to be followed in each approach, including meetings with creditors, filing of documents in the court, and reporting to the court on the process. If any of the appearances are not made the entire bankruptcy process could become seriously derailed.

Additionally, there are special rules that apply to the various types of bankruptcy claims and even someone who receives a formal “discharge” of one debt may need to still fully repay another. For these reasons it is usually wisest to work with an attorney or legal expert.

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