What Happens When I File for Bankruptcy?
Bankruptcy is a legal proceeding that allows a debtor to get out of excessive debt and gain a fresh start financially. Bankruptcy is governed by federal law. Indiana law determines only what assets a debtor may keep upon the filing of his or her bankruptcy petition.
There are three types of bankruptcy; however, one is generally for businesses only. The two main types for individuals are Chapter 7 and Chapter 13, which are described below.
Once a bankruptcy petition is filed, it operates as an “automatic stay” of all debt collection procedures. Generally, this means that all debt collection or repossession activities by creditors must stop. Likewise, all lawsuits against the debtor must stop while the bankruptcy action is before the bankruptcy court. The purpose of the stay is to transfer all collection and debtor-creditor matters to the bankruptcy court. However, criminal actions against the debtor continue, as do all actions for the collection of alimony or child support.
Under Chapter 7 bankruptcy, the trustee liquidates the debtor’s assets for distribution to the debtor’s creditors. However, an individual is allowed to keep a certain amount of exempt property to allow the debtor to gain a fresh start. The determination of what property is exempt is somewhat complicated. Although bankruptcy law is federal law and is generally uniform throughout the United States, the rules governing exemptions allow for certain variations by state.
In Indiana, the debtor is generally allowed to keep (1) real estate constituting a personal or family residence valued at $15,000 or less; (2) personal property (including motor vehicles, furniture, clothing, etc.) valued at $8,000 or less; (3) intangible personal property of $300 or less; (4) professionally prescribed health aids; (5) any interest the debtor has in real estate held as a tenant by the entireties (i.e. with his or her spouse) up to $125,000, unless a joint petition for bankruptcy is filed; and (6) interests in a retirement plan in certain circumstances. If the petition is joint, the dollar amounts are doubled.
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