It can be terrifying to realize that you have more debt than you can handle, but even more terrifying for some people is the uncertainty of bankruptcy. Will they ever recover financially? Will their credit scores be forever impacted? Will all their debt be handled?
This process shouldn’t be a mystery. At Belsky & Horowitz, LLC, we want you to be fully informed of all your options and what they entail. With that in mind, let’s look at what happens after you file for bankruptcy in Maryland.
What Happens After Filing for Bankruptcy?
Consumers have two primary options for discharging debt—Chapter 7 and Chapter 13 bankruptcy. These are two different forms of consumer bankruptcy that share the similar goal of handling a person’s debt in order to renew their financial stability. The method by which this is accomplished differs between the two.
- Chapter 7 is known as liquidation bankruptcy because some of a debtor’s personal property is sold to satisfy creditors.
- Chapter 13 is the restructuring of debt to make repayment more manageable.
There are similar processes that begin at the start of both Chapter 7 and Chapter 13 bankruptcy, though. When you file for bankruptcy, you can expect:
An Automatic Stay Will Temporarily Halt Debt Collection
As soon as you file for bankruptcy, an injunction referred to as an automatic stay will go into place. An automatic stay is a provision that temporarily halts creditors from trying to collect payments or from seizing property.
An automatic stay is an invaluable legal provision if you fear you are facing:
- Vehicle repossession
If a debtor continues to call or harass you for repayment after you’ve already filed for bankruptcy, contact your bankruptcy attorney right away. Under 11 U.S.C. § 362, a creditor who knowingly and willfully violates an automatic stay is subject to actual damages. In this situation, you may be entitled to compensation for related damages (such as legal fees and costs) as well as punitive damages.
A Bankruptcy Trustee Will Be Assigned to the Case
A trustee is an administrator who will play a key role in whether your case is ultimately approved. Every bankruptcy case is assigned a trustee to make decisions and manage important aspects of the process.
One of the most important roles of a trustee is to ensure that you and your bankruptcy lawyer are providing true and honest information. The exact functions a trustee performs will also vary depending on the type of bankruptcy you file for.
In a Chapter 7 bankruptcy, a trustee will:
- Decide which property is exempt and which is nonexempt
- Sell your nonexempt property
- Repay creditors with the proceeds from the nonexempt property
In a Chapter 13 bankruptcy, a trustee will:
- Ensure that your repayment plan is reasonable and affordable
- Collect payments according to the repayment plan’s schedule
- Distribute your payments to creditors
You will be notified when a trustee is assigned to your case. If you are not notified or if you are not provided with their contact information, speak with your lawyer to check on the status of your claim.
A Meeting of the Creditors Will Take Place
The meeting of the creditors may be the first time that you actually meet your trustee in person. This meeting is also known as a “341 meeting” and attendance by you is mandatory. Attendance is optional for creditors.
During the meeting of the creditors, both your trustee and any creditors in attendance will inquire about your bankruptcy documents, your current financial situation, and any other information they deem relevant. The meeting may not last long, so you should do your best to provide honest and complete answers to the best of your ability.
What Happens After You File Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is a liquidation process. To file for Chapter 7, you must first pass a means test, which looks at your current household income. Your household income must be lower than the average annual income for a household of the same size.
A trustee’s most important function in a Chapter 7 filing is to differentiate between exempt and nonexempt property.
Exempt property is property that you are allowed to keep and that will not be sold to satisfy creditors. Examples of exempt property include:
- Your primary residence
- Your primary vehicle
- Household goods
- Clothing and jewelry, up to a certain amount
- Tools of your trade
Tools of a trade may refer to a musician’s instruments or a drywall specialist’s equipment.
Nonexempt property is personal belongings that are sold to repay debts. Examples of nonexempt property include:
- Investment properties or vacation homes
- Second vehicles
- Expensive jewelry or art
- Instruments or tools that are not relevant to your career
After creditors are repaid with proceeds from the sale of nonexempt property, any remaining debt will be discharged. Your discharge letter officially wipes out any remaining qualifying debt.
What Happens After You File Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is referred to as a wage earner’s bankruptcy and is an option if you earn more than the average household of the same size in Maryland or are otherwise ineligible for Chapter 7. As part of this process, you will complete a means test by filling out:
- Form 122C-1 – Used to determine your average monthly income and how long your repayment plan should be.
- Form 122C-2 – Used to determine what disposable income is eligible to use for paying back creditors.
Payment plans may last anywhere from three to five years, depending on your income. Only provide correct and accurate information when filling out these forms. Even unintentional errors could result in problems, including the dismissal of your bankruptcy case. Have your attorney review your forms prior to submitting them.
Once you’ve completed the means test, you and your lawyer will create a repayment plan and submit it to bankruptcy court. Your creditors will then be given a chance to contest the repayment plan. It can take upwards of three months for a plan to be approved or even longer if your initial repayment plan is rejected.
However, even as you wait for final approval, you will still be required to begin making payments in accordance with your submitted plan within 30 days of filing it.
Do not skip payments or pay less than your plan prescribes. If you do, the court may choose to dismiss your case or convert it to a Chapter 7. To avoid this outcome, consider using payroll deductions or autopay functions so that you never miss a payment.
If you successfully complete your repayment plan, you can expect the remainder of your debt to be discharged.
Securing Your Financial Future With Belsky & Horowitz, LLC
It doesn’t matter how you got into debt. If you’re struggling to keep up with monthly payments or are worried about losing your home, the bankruptcy attorneys at Belsky & Horowitz, LLC want to help you set your finances back on track.
We provide vigorous legal representation to residents of Baltimore, Glen Burnie, Rockville, Columbia, Hagerstown, Greenbelt, and elsewhere in Maryland.
For an opportunity to speak one-on-one with an attorney about what happens after you file for bankruptcy in Maryland, please fill out our convenient online form or call our office. We’ll schedule you for a private consultation free of charge.