Many people go through a bankruptcy under Chapter 7 or Chapter 13 uneventfully once they file the initial bankruptcy petition and related paperwork. For example, a debtor who has no assets will not lose any of their property under Chapter 7 and can get a discharge of most or all of their debts within a few months. A debtor who keeps up with payments under their Chapter 13 repayment plan also will retain all of their property and emerge from bankruptcy in three to five years.
However, not every bankruptcy is routine. Creditors and the bankruptcy trustee may contest the debtor’s position on issues such as whether an exemption applies, whether a debt is dischargeable, or even whether they are eligible for a bankruptcy discharge. This section provides an overview of certain types of bankruptcy proceedings that may arise. While the language describing them is often technical, a basic understanding of potential obstacles in your case can help you plan to avoid or overcome them.
Section 341 Meeting of Creditors
The only mandatory hearing that a Chapter 7 or Chapter 13 debtor must attend is the Section 341 meeting of creditors. It usually occurs a few weeks after you file for bankruptcy. The bankruptcy trustee conducts the meeting and will ask you about your financial situation. You will answer the questions under oath, so you must answer honestly and thoroughly. Creditors also may ask questions, although they often do not attend this meeting. If you hire an attorney, they can help you prepare for the meeting and attend it with you.
Read more here about what to expect from the Section 341 meeting of creditors.
Objections to Discharge
If creditors have objections to a debtor receiving a discharge through bankruptcy, they often do not raise these at the Section 341 meeting. Instead, they may file an objection within 60 days of the meeting. The objection may be based on a single debt, which is more common, or on the debtor’s overall eligibility for a discharge. Objections based on a single debt tend to arise from alleged misconduct by the debtor that resulted in the debt. Objections to the discharge as a whole often relate to fraud or other wrongdoing during or just before the bankruptcy. Sometimes the bankruptcy trustee raises this type of objection instead. Debtors can face serious consequences if an objection based on fraud succeeds, ranging from the dismissal of their case to criminal charges.
Read more here about types of objections and situations in which they may arise.
An adversary proceeding is essentially an independent lawsuit that arises in the course of a bankruptcy case. A party may initiate it when they cannot achieve their goal within the bankruptcy proceeding. An adversary proceeding may be based on an objection to discharge or an attempt to reverse a preferential transfer, for example. A preferential transfer occurs when a debtor pays a creditor shortly before filing for bankruptcy, such as a friend or family member. In other cases, a bankruptcy trustee might bring an adversary proceeding to divide property interests so that the debtor’s share of the property can be sold to pay off their debts. Adversary proceedings are distinct from contested matters, which can be resolved within the main bankruptcy case. These might involve a request to lift the automatic stay or an objection to a creditor’s proof of claim.
Read more here about adversary proceedings and the steps that they follow.
Dismissals Without Prejudice
If a debtor makes an error in filing their case, and the error appears to be procedural and inadvertent, the court likely will dismiss the case without prejudice. A court also might dismiss a case without prejudice if the debtor fails to appear at the mandatory meeting of creditors or fails to keep up with their monthly payments in a Chapter 13 repayment plan. This allows the debtor to refile the case at any time, potentially under a different bankruptcy chapter if needed. (By contrast, a dismissal with prejudice prevents a debtor from filing again within the time provided by the dismissal order.) A dismissal without prejudice can have an impact on the automatic stay if you file again within the next year. You may need to bring a separate motion to ask the court to reinstate or extend the automatic stay.
Read more here about what happens if the judge dismisses your case without prejudice.