Bankruptcy petition

3 key takeaways

• A bankruptcy petition starts the legal process of bankruptcy.
• It can be filed voluntarily by the debtor or involuntarily by creditors.
• The petition must include detailed financial information and supporting documents.

What is a bankruptcy petition?

A bankruptcy petition is the official document filed with the bankruptcy court that initiates the bankruptcy process. It serves as a formal request for relief from debt under the bankruptcy laws. The petition can be filed by the debtor (voluntary bankruptcy) or by creditors (involuntary bankruptcy) who believe the debtor is unable to pay their debts.

Filing a bankruptcy petition triggers an automatic stay, which temporarily halts most collection actions against the debtor, such as lawsuits, garnishments, and foreclosures.

Types of bankruptcy petitions

1. Voluntary petition

• Filed by: The debtor.
• Purpose: To seek relief from overwhelming debt by initiating bankruptcy proceedings.
• Common chapters: Chapter 7 (liquidation) and Chapter 13 (repayment plan) for individuals; Chapter 11 (reorganization) for businesses.

2. Involuntary petition

• Filed by: Creditors.
• Purpose: To force a debtor into bankruptcy when creditors believe the debtor is not paying their debts.
• Common chapter: Typically filed under Chapter 7 or Chapter 11.

How to file a bankruptcy petition

1. Complete credit counseling: Before filing, individuals must complete a credit counseling course from an approved agency.
2. Gather financial documents: Collect all necessary financial information, including income, expenses, assets, debts, tax returns, and recent financial transactions.
3. Fill out the petition forms: Complete the required bankruptcy forms, which include detailed schedules of assets and liabilities, a statement of financial affairs, and other supporting documents.
4. File the petition with the court: Submit the completed forms and pay the filing fee to the bankruptcy court. Filing can be done in person, by mail, or electronically, depending on the court’s procedures.
5. Automatic stay: Once the petition is filed, the automatic stay goes into effect, stopping most collection actions against the debtor.

Information required in a bankruptcy petition

• Personal information: Name, address, Social Security number, and other identifying details.
• Income and expenses: Detailed information about the debtor’s income sources and monthly expenses.
• Assets and liabilities: A comprehensive list of all assets (property, bank accounts, investments) and liabilities (debts, loans, credit cards).
• Recent financial transactions: Information about significant financial transactions within the past few years.
• Creditors: A list of all creditors, including their contact information and the amount owed to each.

Real-world application

Example: Jane, overwhelmed by medical bills and credit card debt, decides to file for Chapter 7 bankruptcy.

Credit counseling: Jane completes the required credit counseling course and receives a certificate of completion.

Gathering documents: She collects her pay stubs, bank statements, tax returns, and a list of her debts and assets.

Filling out forms: Jane fills out the bankruptcy petition and accompanying schedules, detailing her financial situation.

Filing the petition: She files the petition with the bankruptcy court, paying the filing fee. Upon filing, an automatic stay is issued, halting collection actions from her creditors.

Outcome: The bankruptcy court schedules a 341 meeting (creditors’ meeting) to review Jane’s case. If all goes smoothly, Jane will eventually receive a discharge of her eligible debts.