Bankruptcy FAQ - Frequently asked Questions and answers about Bankruptcy

Is it mandatory for married couples to file Joint petition or can they file individual bankruptcy petition

No. It is not mandatory for married couples to file Joint petition. Either spouse may have debts alone or debts may be shared. It is the couples themselves who must take an important decision whether to file an individual or joint case.

What is 90 day rule in bankruptcy

The 90 day rule in bankruptcy is the rule which allows a trustee in bankruptcy to recover payments that the debtor made on legitimate debts if the payments in that 90day period give that creditor more than the creditor would have acquired through the bankruptcy process. These payments are termed as preferences. It may operate to the prejudice of a creditor who got more than its fair share of the debtor’s assets right before the bankruptcy case was commenced.

Who is a debtor in possession

In United States bankruptcy law, a debtor in possession is a person or corporation who has filed a bankruptcy petition, but remains in possession of property upon which a creditor has a lien or similar security interest. A corporation which continues to operate its business under Chapter 11 bankruptcy proceedings is a debtor in possession.

What is means test

Means test generally refers to the eligibility for the relief for debtors who have sufficient means to pay a portion of their debts. It helps in the determination that whether the debtor is eligible to obtain relief by way of bankruptcy or not.

What is Bankruptcy

Bankruptcy means insolvency wherein a person or an organization is unable to pay off the debts to its creditors. It is a legal proceeding involving a person or business to repay the outstanding debts.

Why Bankruptcy

Bankruptcy helps in reducing the overall debt significantly. It is beneficial of the debtors and creditors. The debtors are given a chance to correct their state of indebtedness and creditors are given the assurance of repayment of valid loans.

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What happens after I file for Bankruptcy

Once the bankruptcy petition is filed, an automatic stay is issued that prevents those to whom the amount is due. Creditors’ meeting is the next step. A meeting with all the creditors will be conducted wherein the petition would be discussed. The bankruptcy trustee will be present for the meeting and he will verify the terms of the bankruptcy papers and confirm that there is no inaccuracy with the amount that has been mentioned. All the non – exempt property would be given to the bankruptcy trustee for liquidation. The trustee would sell the assets in order to pay off the debts. The debtor is not allowed to sell any property without the prior permission of the trustee.

How long does Bankruptcy take

The time between filing for bankruptcy and obtaining a discharge usually lasts from four to six months.

Will bankruptcy put an automatic stay on the credit collection efforts of the creditor

Yes, bankruptcy will put an automatic stay on the credit collection efforts of the creditor.

Is this stay permanent or temporary

The automatic stay which is imposed is temporary in nature as the automatic stay will remain in effect until one of the following takes place namely:-

  1. The judge lifts the stay at the request of the creditor
  2. Debtor is discharged via bankruptcy
  3. The item of the property is no longer in the bankruptcy estate
  4. The bankruptcy case is dismissed.

When the debtor gets a bankruptcy discharge, the automatic stay will be replaced by a permanent injunction prohibiting creditors from further action against the debtor for debts that are discharged and are pre-petition debts. New debts incurred after filing date of bankruptcy are not discharged.

Under which chapter should I file for bankruptcy protection

One can file for bankruptcy protection under Chapter 7, Chapter 11 and Chapter 13.  Under Chapter 7, the business ceases all its operations and the bankruptcy trustee will meet all the unpaid debts by way of selling its property. Under Chapter 11, the debtor will remain in possession of his properties but will be subject to the control and supervision of the Court. And under Chapter 13, the debtor proposes to re-pay his creditors but in future over a period of 3-5 years. Here the debtor will be in possession of the property and the creditor will be paid his debts but less money than they are owed.

Why Chapter 7

Chapter 7 deals with “liquidation of assets” where bankruptcy trustees collects the non-exempt properties of the debtor, sells it and pays off the debts which it owes to the creditor. This Chapter is mainly introduced so as to protect the interests of the creditors. The Bankruptcy code allows the debtor to keep certain exempt properties with himself.

Why Chapter 11

Chapter 11 deals with “reorganization” where the debtor himself will be in possession of his properties but will be under the supervision of the court. In short it is a way of giving the corporations a time gap so as to restructure their debts. This section is primarily to protect the interests of debtors.

Why Chapter 13

Chapter 13 deals with “individual reorganization” whereby the individuals can stop foreclosure proceedings and cure delinquent mortgage payments over time. Here the creditors will be paid their debts but in a future period and the amount paid to them will be less than they are owed. Bankruptcy chapter13 is mainly introduced so as to protect the interests of the debtor.

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