Filing for bankruptcy in the state of Indiana tends to be the same as it is across most of the country because the filing is in the federal court system. Bankruptcy is not a state issue; instead, the legal process is under the jurisdiction of federal law. That means the decision in the case ends up affecting all of a filer’s debt nationwide, no matter where the impacted creditor is located.
However, federal law does allow for states to add on additional issues as long as they are not in conflict with the federal system. So, when it comes to property distribution, state laws can have an influence.
The Steps to File
First, a filer needs to decide which type of bankruptcy will apply, Chapter 7 or Chapter 13. Chapter 13 applies what is known as reorganization, allowing the filer to reorganize his or her financial activities but not dissolving the debts. While the process occurs, the creditors have to wait or take lower debt payments per court order, but ultimately, they all still get their payments. A Chapter 7 filing is more drastic; everything of a viable asset is liquidated (with some exceptions) to pay outstanding debts and then the rest by court order is dismissed. Creditors who are not in the front of the line end up with nothing. The filer loses all viable assets but walks out of the process cleared of owing any further debt up to that point.
There is a restriction on who can file in general. First-time filers for bankruptcy generally pass. If filing a second or repeat time, the filer needs to make sure the minimum window has passed before another filing can be made. Additionally, Chapter 7 filings need to have an income below the median income level for similar family sizes in Indiana. If not, then the filer can only choose Chapter 13.
Again, a bankruptcy filing can dismiss a lot of debts, or it can delay them pending a financial restructuring of one’s financial life. However, some debts by federal law can’t be dismissed in the process. Federal student loans, for example, are a common category that still applies and has to be paid. Another non-dismissable category would be support charges such as alimony or child support. Tax debts also stick around.
If the filer has decided the filing type that best applies to his or her situation, the next step is to file the paperwork in the federal bankruptcy court to start the proceeding. Nothing occurs until this is done. Once filed, the court then sends a notice to all declared creditors named that the bankruptcy filing is pending, essentially blocking any further collection of debts. In the meantime, the court then goes through the process of validating the estate and assets of the filer through a court trustee. It is highly advised that a filer uses a bankruptcy attorney for guidance and representation. The trustee has the power to pursue and determine any viable assets, including those given away just before the filing (a common tactic used to hide valuables from the proceeding). The trustee will also require the filer’s attendance at a public hearing; creditors can attend where the filers confirm their statement, assets, and debts. Because it is a federal hearing, any attempt to omit or lie to the trustee can result in federal criminal charges. Again, having an attorney in these proceedings is critical to avoid saying the wrong thing.
The Actions of the Court
Once the hearing and review process with the trustee is complete, the court will confirm any remaining requirements are fulfilled. A common one is that the filer goes through a financial debt education course. Filers are often required to file a certificate of completion to prove the education requirement has been met. The final hearings then provide the court’s determination of the dissolution of debt or, in a Chapter 13 filing, the financial modification plan that must be followed.
With regards to assets reviewed by the court, the process is not a total loss. For filers in Indiana, a state bankruptcy exemption will apply which protects exempt types of property. Common items include:
- $19,300 of equity in a home, real estate, or tangible property. This is referenced under the Homestead Exemption under Indiana law.
- $10,250 under a Wildcard Exemption covering non-residential equity in real estate or tangible property. Many use this category to protect a vehicle since the state does not have a vehicle-specific exemption.
However, the filer has to choose whether to apply for the state exemption or the federal one. And, where spouses are filing together, the exemptions allowed can be doubled in a community property situation (i.e., both names on the house title). Further, various COVID stimulus payments may be protected as well, including child credits, tax credits, and general stimulus payments. Finally, retirement accounts like IRAs and 401Ks are protected as well.
Remember, everything filed in a bankruptcy filing is under federal law. Filers have to be forthright and completely honest about all details. Lying to a court trustee or the court, or omitting key information can result in criminal charges with hefty penalties and jail time ($250,000 fines, 20 years in federal prison, or both). Further, the trustee has a significant say for the court on what exemptions will pass. Mis-categorizing assets can trigger a trustee action that disagrees with the filing and wipes out the exemption claimed.
The advantage of using a bankruptcy lawyer removes a lot of the complications of the process that can frustrate even the most financially literate folks. A bankruptcy attorney can verify the correct filing process, correctly qualify the filing, keep things on track and on time with deadlines, protect property with the best exemption choices that fit the case, help the filer avoid fraud or deception traps, and fend off creditors trying to pressure payments during the filing process.