The purpose of bankruptcy proceedings, the reason a person seeks bankruptcy, is to gain relief from bills the person is unable to pay.
Under the Bankruptcy Code, a person may gain a discharge through bankruptcy. This means the bankruptcy court determines that the person no longer has to repay that debt – ever. Another potential option under the Bankruptcy Code is the creation of a payment plan, generally over the course of three to five years, under which a person may repay existing debts. There are other types of relief under different chapters of the Bankruptcy Code also.
Begin with the Petition
A bankruptcy case normally begins by the debtor filing a petition with the bankruptcy court. A petition may be filed by an individual, by a husband and wife together, or by a corporation or other entity. The debtor is also required to file statements listing assets, income, liabilities, and the names and addresses of all creditors and how much they are owed.
Next, the Stay
The filing of the petition automatically prevents, or “stays,” debt collection actions against the debtor and the debtor’s property. As long as the stay remains in effect, creditors cannot bring or continue lawsuits, make wage garnishments, or even make telephone calls demanding payment. This temporary relief can be very valuable to the debtor.
Creditor Option to Dispute
Creditors receive notice from the clerk of court that the debtor has filed a bankruptcy petition.
Some bankruptcy cases are filed to allow a debtor to reorganize and establish a plan to repay creditors, while other cases involve liquidation of the debtor’s property. In many bankruptcy cases involving liquidation of the property of individual consumers, there is little or no money available from the debtor’s estate to pay creditors. As a result, in these cases there are few issues or disputes, and the debtor is normally granted a “discharge” of most debts without objection.
Where creditors do want to lodge an objection to the discharge of some or all of a debtor’s debt to that creditor, the creditor may file a complaint, and initiate an adversary proceeding. If the creditor does not do so, the debtor might receive an automatic discharge.
Discharge Prohibits Collection Efforts
Debt that is discharged is debt that the bankruptcy court determines the debtor no longer has to repay. Creditors are not permitted to seek repayment of those debts after they are discharged. Creditors may not send mail, make telephone calls, or any other form of communication to the debtor to attempt to collect on discharged debts.