Duration Of The Bankruptcy Process

How Long Does Chapter 7 Bankruptcy Take?

A Chapter 7 bankruptcy usually takes about four to six months from filing to final discharge, as long as the person who’s filing has all their ducks in a row. There are a lot of moving parts to filing for Chapter 7 bankruptcy, and missing or delaying any one of them can slow down or stop the process.

Once filed, a simple case, known as a “no asset” case – the person has no personal property or financial assets that can be liquidated to pay off creditors – can be discharged in a matter of weeks once all the other steps are completed. The more complicated the case, or if the person filing is slow to do what’s required of them, the longer it can drag on.

Bankruptcy cases take place in U.S. Bankruptcy Court. Each state has one, but the process actually starts before you file. Those planning on filing have to be able to prove to the court they don’t have the money to pay their unsecured debt and are also required to take a credit counseling course before they can file.

Once Chapter 7 bankruptcy is filed, the court process starts. It involves loads of paperwork and documentation and a strict schedule. Things that can delay it include not filing all the paperwork on time, misrepresenting property as exempt or creditors disputing a discharge.

The length of time it takes really depends on the person filing, whether they do it properly and how complicated their financial situation is.

Chapter 7 Bankruptcy Timeline

The Chapter 7 bankruptcy process has many steps. Your obligation includes gathering information required by the court and the trustee, taking a credit counseling course, paying a filing fee, which sets the court process in motion, attending a “meeting with creditors,” and more. The judge could discharge your debt once all that happens.

Most cases follow the same basic timeline.

“Normally, the process takes about four months,” Cibik said. “Once you file your Chapter 7 bankruptcy, the meeting of creditors with the Chapter 7 trustee is approximately 30-45 days later. Then, the court waits 60 days to see if any creditors object to your Chapter 7 bankruptcy. If no objection, it takes about another 15 days to close out the case and get your Chapter 7 discharge of debt.”

Gathering Information: Gathering documents that the court requires can be time-consuming, but it’s the most important part of the process. Cibik said the trustee will want your last two years of income tax returns, six months of proof of income (generally paystubs if you are working) and three months of bank account statements. You also need to figure out what you own and how much it’s worth, as well as how much you spend and on what for when it comes time to file forms. More on that shortly.
Credit Counseling Course: Those filing bankruptcy must take a credit counseling course 180 days or less before filing. The courses are provided by agencies that are approved by the U.S. Trustee Program office. The judge won’t accept the filing without a certificate showing you took the course. The point of the counseling is to make sure filing Chapter 7 bankruptcy is your only option. If the credit counseling agency develops a repayment plan for you, you’re required to file it with your other information for the court, whether you agree with the plan or not.
Filling out Forms: Once you’re ready to file, you get a packet that includes 23 federal forms to fill out, and often some specific to your state as well. The most important federal form is the “voluntary petition,” Form 101, in which you describe why you’re filing, what you’ve done to improve your finances (including take the credit counseling course), and more. This is the form that gets the ball rolling on the bankruptcy court process. Other forms ask you to list your assets, divide them into exempt and nonexempt, separate your secured and unsecured debt, list contracts and leases (including things like your cellphone service contract), assess your income and more. If you’ve hired an attorney, they can fill out the forms for you. If not, they can take hours to complete. If they aren’t completed to the court’s satisfaction, it will delay your filing.
Paying the Filing Fee: When you file for bankruptcy, you have to pay a bankruptcy fee, which is $335. The court process doesn’t begin until it’s paid. If the judge allows you to pay in installments, the final installment must be paid before the court handles your case.

Meeting of Creditors

The bankruptcy trustee assigned to you by the court will meet with you, in a 341 hearing, usually referred to as the “meeting of creditors.” While your creditors are invited, they don’t generally attend. The meeting usually takes about 10 minutes and requires much of the same paperwork you used to file for bankruptcy. The trustee will request the documentation from you beforehand, and, again, the quicker you provide them, the faster the process will go. The trustee will go over everything with you and determine how much your creditors will be paid.

The trustee has 30 days after the meeting to object to an exemption that you’ve requested, and creditors have 60 days to object to the debt discharge.

You have a deadline – 45 days – to determine what will happen to your secured debt, like your car payments or mortgage.

Debtor Education Course

Yes, you took the bankruptcy credit counseling course before you filed. You also have to take a debtor education course after you’ve filed. It’s required and administered by agencies certified by the U.S. Trustee Program. This course focuses on how to make good financial decisions and avoid future bankruptcies. You have 60 days to take the course after the 341 hearing and must file a certificate of completion with the court. If you don’t, your bankruptcy is dismissed.

The Discharge

Once the deadlines have passed and the court gets all the required documentation, including the certificate showing you’ve completed debtor education, the judge issues the discharge. You will receive an official order by mail once that happens.

If you want to check the status of your case, there is a toll-free 24-hour number, the Voice Case Information System, 1-866-222-8029. You need to know the specific court (your state’s bankruptcy court), your case number, your complete name the case was filed under, and Social Security number or individual taxpayer identification number to get your case information.

The Six Steps in a Bankruptcy Process

There are six steps to a bankruptcy. While certain bankruptcies will be more complex than others, you and your bankruptcy lawyer will work through the stages until your debts are formally discharged.

Step 1: Pre-Bankruptcy Counseling

Before filing for bankruptcy, you must meet with a government-approved credit counselor to discuss the possibility of filing for bankruptcy within the next six months. At this one to two-hour meeting, you will discuss your financial situation, the bankruptcy options, and start a personal budget. Most of the time, your bankruptcy attorney can suggest a counselor.

Step 2: Filing the Bankruptcy Petition

The bankruptcy petition is the most complicated part of this process. The petition is an intricate document that describes and categorizes all of your outstanding debts using a strict format.

Generally, a bankruptcy lawyer will create this document for you after asking you questions about your financial situation and looking over your financial documents.

Once your lawyer collects the information and drafts the document, you formally file the petition with the courts. This officially starts the bankruptcy timeline.

Step 3: Automatic Stay

As soon as you file for bankruptcy, the courts will issue an automatic stay. The automatic stay is a court order that prohibits your creditors from contacting you to collect on your debts.

To do this, the bankruptcy court sends out a Notice of Filing and a Notice of Stay to your creditors. This makes it illegal for your creditors to continue trying to collect on your debts and stops any collection proceedings, like lawsuits.

During the automatic stay, your creditors may only contact your lawyer, and all the calls should stop.

Step 4: Creditor’s Meeting

About a month or two after filing for bankruptcy, you and your attorney will attend a creditor’s meeting set up by your bankruptcy trustee. Generally, this meeting lasts less than an hour (or sometimes as short as five minutes!) and is attended solely by you, your representation, and the trustee.

Creditors may attend to lodge any complaints or otherwise present their case, but this is very rare.

Because there are limited ways that creditors can contest a bankruptcy discharge (such as fraud or other illegal activity), you are unlikely to have to deal with this. Most of the time the trustee will simply ask a few questions and then deal with your attorney to finalize any questions or concerns.

If you are filing for Chapter 7, the trustee will follow up by formally approving the filing. If you are filing for Chapter 13, the trustee will set up a payment plan for the next three to five years.

At no time during this, should a creditor contact you directly.

Step 5: Debtor Education Course

Before the bankruptcy is finalized you must complete an approved debtor education course. Many can be completed online, and they take an average of two hours to complete.

During the financial counseling course, you will be taught how to create a budget, manage money wisely, and use credit appropriately.

Step 6: Notice of Discharge

After you finish all of this, your debt will be discharged.

In a Chapter 7 petition, this occurs after the trustee looks over the bankruptcy filing and finds no major problems. During a Chapter 13, this happens after you finish the agreed-upon payment plan. In either case, you will receive a Notice of Discharge, which means that any included debt is cleared from your record.