What Is The Effect Of Filing For Bankruptcy?

When a bankruptcy petition is filed, the immediate effect is an "automatic stay."

The automatic stay is a mechanism that protects the debtor and the debtor's property from debt collection and property repossession. It prevents creditors from starting and continuing lawsuits and enforcing judgments or property liens that were in place prior to the date of filing for bankruptcy.

However, not all proceedings are prevented by the automatic stay. Such proceedings include child support or alimony payment enforcement proceedings and criminal actions against the debtor.

In addition, some secured creditors (creditors who hold property as collateral for a debt) may seek to "lift the stay" in order to attempt to repossess the collateral which has been secured. The court may allow the repossession of collateral or it may require the debtor to make periodic payments to the secured creditor.

The primary reason for most bankruptcies is the "discharge" of unpaid debts. Discharge is the cancellation or elimination of a debt by the bankruptcy court.

Discharged debts are no longer legal obligations of the debtor. Most debts will be discharged as a result of bankruptcy. However, the following kinds of debts will not be discharged:

m Debts that the debtor failed to list on schedules in the debtor's bankruptcy petition.

m Alimony payments and child support.

m Certain educational loans.

m Income taxes due within the past 3 years.

m Debts for cash advances in excess of $1,000 drawn on a credit line or credit card within 60 days of filing for bankruptcy.

m Debts for certain luxury goods totalling more than $1,000 for services purchased within 60 days of bankruptcy.

m Fines and penalties, including traffic violations and criminal fines.

m Debts incurred by using false financial statements or by fraudulent means.

m Claims against the debtor that have arisen as a result of the debtor's drunk driving.

m Claims arising from willful or malicious injury to another by the debtor.

m Embezzlement or misuse of funds by the debtor acting in a fiduciary capacity, such as an executor or trustee.

The automatic stay occurs immediately at the time of the filing of bankruptcy. The discharge of dischargeable debts will occur at different times depending upon the chapter under which the debtor files.

In Chapter 7 bankruptcy (the most common), discharge usually occurs 90 days after the filing for bankruptcy if there have been no objections to the discharge.

Discharge occurs in a Chapter 11 bankruptcy when the plan of reorganization has been confirmed. This may not happen for a number of years.

In a Chapter 13 bankruptcy, discharge occurs upon completion of the payments under the terms of the plan.

Of course, the information in this article is general only. If you have more questions, I suggest you consult an attorney that practices bankruptcy.