After you file bankruptcy, you may realize that your life has changed for the better. You will stop getting calls from creditors and you can start your life afresh. But, you will have to be extremely cautious about your finances now and act with responsibility when it comes to spending and credit.
After filing for bankruptcy, it is very unlikely that you will be able to get any credit… because bankruptcy will ruin your credit score. Even if you get lucky, the loans available to you will now come at a higher cost e.g. interest rates could be 2-3 % (200-300 basis points) higher than before, credit card interest rates may range from 15% to 25% etc. You can negotiate for lower rates once you establish good standing on your credit report.
However, what exactly happens after bankruptcy will depend on what type of bankruptcy you have filed for.
After chapter 7 bankruptcy
Filing chapter 7 bankruptcy automatically stops or stays most collection activities by your creditors as a notice of the case is served to them. In about a month, a meeting with all your creditors will take place, where a court-appointed bankruptcy trustee will put you under oath. Both the trustee and creditors may ask you questions. Also, you need to provide financial records or documents that are asked for in the event of any discrepancies or inaccuracies in the amounts you’ve mentioned in the bankruptcy papers.
In case you need a complete relief, the Bankruptcy Code allows a chapter 7 case to be converted into a case under chapter 11, 12, or 13 (6) subject to your eligibility i.e., the case has not previously been converted to chapter 7 from another chapter and other criteria.
When a company files chapter 7 bankruptcy, it completely stops all its day-to-day business operations. The court-appointed trustee will sell off the company’s assets in order to facilitate payment of debt to creditors and investors.
After chapter 13 bankruptcy
Apart from some of the common bankruptcy-related reliefs, chapter 13 provides a number of other advantages like a special automatic stay that protects your co-debtors. Most importantly, the automatic stay stops any foreclosure proceedings on your home as soon as you file the petition. However, if the mortgage company completes the foreclosure sale before you file the petition, you may lose your home. Also, there is a chance you will lose your home if you fail to make the mortgage payments that are due after you file the petition.
There will be a meeting of creditors in about a month, after which there will be a court hearing on your repayment plan which will be attended by the trustee and your creditors. The property that you have not claimed to be exempt is given to the trustee for liquidation. The trustee will then begin the process of selling off your assets to pay back your creditors. Also, you are not allowed to sell, give away or throw away any of your property without the permission of the bankruptcy court.
After chapter 11 bankruptcy
A company files chapter 11 bankruptcy to reorganize its business and try to get back on track (read make profit) again. The plan must be accepted by the creditors, bondholders and stockholders, and confirmed by the court. However, even if the plan is voted out, the court can still go ahead with the plan if it is in the interest of the concerned parties.
Though the company’s management continues to run the operations, all important business decisions must be approved by the bankruptcy court. Also, the company’s securities may continue to trade on stock exchanges. When the assets are being divided, secured creditors like banks are the first to be paid. Unsecured creditors, like bondholders, will be the next ones to be paid. In most cases, stockholders bear the brunt of the bankruptcy as they lose their investment and may not receive anything.