Before you can file bankruptcy you are required to attend a briefing with an approved non-profit entity which will conduct a budget analysis with you. The cost for said counseling average $50. Please see our section on Credit Counseling for a list of providers.
Once the documents are electronically filed with the Court, you will be assigned a case number and this event causes you to have an active case. Immediately upon filing your case, a legal injunction goes into effect prohibiting your creditors, landlords, spouses, and government entities from taking any further action to collect or recover on any debt you owe or go forward on any civil litigation without getting approval of the bankruptcy court. For example, a paycheck garnishment or foreclosure is halted and a repossession may be returned to you. This injunction is called the "automatic stay".
After the filing of your case, but before you receive a discharge, a 2nd class entitled Debtor Financial Education must be completed. Our firm contracts with Hummingbird credit counseling service to complete this class. You can do it at our office or at your residence. Failure to complete the class will result in the case being closed without receiving a discharge.
The meeting with the creditors and your trustee usually occurs within 45 days of the case having been filed. It is often referred to as the section "341(a) Meeting." It is a very simple meeting but can be lengthy is you or your attorney are not prepared. While the meeting is called a “creditors meeting," few creditors attend the meeting. An attorney from Busby and Associates will explain what you can expect at the hearing and be present with you at this time. The Trustee is an independent person appointed automatically in all Chapter 7 bankruptcy cases by the United States Trustee's Office and will review your documents and confirm that the information you provided is true and correct. The trustee acts as a fiduciary for your unsecured creditors. The Trustee can also object to the granting of discharge in your case if he/she believes your case was not filed in good faith (such as you have too much excess income to file a Chapter 7 bankruptcy) or if you have committed fraud in connection with your petition. Most assets are exempt in Texas, which means you can keep the property. In your office consultation, a review of your possessions will be made to insure that what you own will be protected.
The property you claim as exempt can be reviewed and objected to by both the trustee and your creditors up to 30 days after the meeting of creditors. After the 30 days have passed from the meeting of creditors, you are allowed your exemptions.
Your creditors have until 60 days after the date first set for your meeting with the Trustee to file a complaint objecting to the discharge of their debt, or to your entire discharge. Grounds for doing this include fraud (such as incurring charges on a credit card that you did not intend or have the reasonable ability to repay at the time they were made), false statements on a credit application, willful or malicious injury to a person or property of a person. In most cases no objections are filed. However, if a creditor does file a complaint, there will be a trial. You will need to decide whether you wish to defend the action, settle it, or just let it go to default judgment. While I encourage you to make your case before the judge, an attorney must mitigate any potential damages. If I feel the creditor is going to win, I will encourage you to settle out of court. If the creditor has no case, then a trial would be in order with an attorney fee request from the creditor for filing a “frivolous suit."
The goal of your bankruptcy! If nobody objects to your discharge, then you will receive a Notice of Discharge in the mail about two months after your 341 meeting of creditors. This notice provides that you are discharged from all dischargeable debts. Certain debts are not dischargeable, such as child support, alimony, certain taxes, student loans, and some others. It is important to also understand that the discharge applies to all dischargeable debts which you scheduled in your bankruptcy petition. If a creditor was not included, you may need to reopen your case, add the missing creditor and separately discharge that creditor. In the 5th Circuit, if there are no assets to administer, the debt is discharged even if not scheduled. Our firms only files cases in Texas which is part of the 5th circuit. However, should you need to reopen, additional fees and costs may apply so it is important that all creditors are properly identified at the beginning of your case. The legal effect of the discharge means that the creditor has no right to petition a court to request a judgment be entered against you for the debt.
Ideally, your credit report should show your discharged debt with a ZERO balance and it should say "Included in Bankruptcy" next to it. If it does not say this, then log into the credit bureau’s web site and go to "DISPUTE." This will pull up every creditor on your credit report. Just click on the creditor you are disputing and it will being up a box of reasons why you are disputing that debt. All you need to do is click the reason "Was included in my bankruptcy filing." It's that easy.
In about 45 days, the agency will update your report showing the debts being reported correctly. It's not hard to take care of this, but it is something that you should do.
IMPORTANT: Make sure that your Credit Report is UPDATED and CORRECTED PRIOR to getting any type of financing. Especially if you are buying a house or car!
The Next Two to Three years:
The next two to three years will be the most important time to re-establish and rehabilitate your credit. You don't need to lay low for the next two to three years. However, you should focus on living within your means and paying cash. This may mean buying things used, buying things at thrift stores, and not going out and buying and financing a bunch of new stuff. You need to learn to live on a budget.
Of course this doesn't mean that you shouldn't get any credit at all. Normally it helps to have two to three new credit items on your report after a bankruptcy filing. This may mean getting a car loan or applying for a credit card. You should be receiving offers for credit as we speak. However, please be SMART about any new credit you receive. Pick and choose credit that is the most affordable. The main impact the bankruptcy has on your credit is that your new credit is much more expensive. You are considered a credit-risk and you will have to pay a much higher rate of interest than someone with a better credit score.
Most importantly, once you establish new credit, you must pay ON TIME. If you increase your income, re-establish your credit, and pay on time, then you should find that after four or five years that your credit score will improve greatly and the bankruptcy will not affect you as much anymore. After the fifth year, most lenders will only want to know what have you done since the bankruptcy and how able will you be to pay for your new credit.