Whether a debtor files for a Chapter 7 or Chapter 13 bankruptcy, the court automatically issues a stay to all creditors to prevent any further collection actions. This includes any phone calls, court proceedings, bank levies and wage executions. With respect to debts that are secured by property, however, a secured creditor may request to bypass the automatic stay to enforce its lien through foreclosure or other available method.
During Chapter 13 proceedings, each creditor must file a Proof of Claim form with the court before a specific deadline. This form states the exact amount of the debt on the date that the debtor filed for bankruptcy. During the Chapter 13 process, the debtor will create a payment plan with the court that will range from three to five years. If the debtor fails to make the payments properly, the court may dismiss the bankruptcy case, allowing the credits to begin collection actions again.
The courts normally process Chapter 7 bankruptcy cases in four to six months. During this period, the trustee will liquidate the debtor's nonexempt assets and use the proceeds to pay creditors. At the end of the period, the remaining unsecured debts are in most cases discharged. This gives the debtor a clean slate that allows a fresh financial start.
Debtors who wish to reorganize their obligations may want to consider filing for Chapter 13 bankruptcy. This is designed for those consumers who have a fairly steady and reliable source of income that will allow them to make timely payments in accordance with the plan that is submitted and approved. There are several eligibility requirements for this form of bankruptcy that an attorney can explain.