How Long Does the Bankruptcy Process Take?
They say waiting is the hardest part, but if you have been struggling to deal with debt collectors and to try to keep your head above water while your budget is stretched thin every month with minimum payments and the like, you may be relieved to know that — at least once you file your bankruptcy petition — the worst, though not the wait, is over. Once you file your initial papers, all debt collection attempts must stop while the bankruptcy is pending, which means fewer debt collection calls and letters and at least a few steps towards normalcy and sanity. But just how long does the bankruptcy process take?
The time it takes a bankruptcy case to churn through to completion will vary based on your situation, whether you are filing a Chapter 7 or Chapter 13, and whether there are issues with your paperwork or assets. Generally, an individual filing a Chapter 7 — the most common type of bankruptcy filing where your excess assets are liquidated and your debt eliminated — can expect the bankruptcy process to last only a few months. However, read on to learn about some factors that may lengthen your timeframe.
Chapter 7: Expect Six Months
In a Chapter 7 bankruptcy, your extra car, that massive savings account, and your collection of Jules that you lent to the Smithsonian Museum… Okay, jokes aside, because most people file for bankruptcy are normal folks who don’t have invaluable jewelry or tons of assets in general. In reality, your assets beyond the necessities of life such as a limited amount of home equity or a card to get to work, are all sold off in order to settle some of your debt. Once the excess assets are liquidated and some of the debt is paid, the rest is just charged after a few court hearings. Here is the timeline in a little more detail:
- Paperwork is filed. This starts when you are ready to file, and there are some considerations to weigh when you decide when to put that paperwork in the court clerk’s hands. At this point, an automatic stay is issued that prevents creditors (once they are notified) from continuing to try to collect on your debts. Your paperwork that you file with the court provides details on your income, assets, expenses, debts, and the property that you believe to be exempt from the selloff process.
- Dealing with creditors. When you file, as mentioned, the debt collection efforts must stop. The court will notify creditors of your filing and will set a date for a 341 meeting of creditors hearing. This routine hearing takes place about a month after the filing and the court will ask you a few questions about your paperwork under oath. The creditors may also ask questions.
- A little education. When you file for bankruptcy, you are required to complete two courses on finances and credit — one before filing, and one within 60 days of your 341 hearing. The pre-filing course is intended to educate you on repayment options that are alternatives to bankruptcy and the second course, that takes place after filing and within that 60 day period, is about financial education: things like budgets and rebuilding your credit after bankruptcy.
- Discharge and a closed case. If everything goes perfectly, and you have completed your education requirement, expect a court order wiping out your debt after about two months from the date of that 341 hearing.
Common delays in a Chapter 7 Filing
While the best case scenario is about a month from filing to the 341 hearing, and another two months to get that discharge order, delays are common and vary from shorter delays to much longer issues, such as filing an additional lawsuit as part of your bankruptcy case. Some common examples include:
- Questions Arise About Your Filing. Your bankruptcy paperwork is reviewed by the bankruptcy trustee, who is entrusted with the job of reviewing your paperwork and overseeing the sale of your excess assets and distribution of those assets to your creditors. If the trustee has questions about what you filed, she may ask you to supplement your filing and may postpone your 341 hearing in order to give you time to do so. Similarly, creditors do have the right to ask questions in the 341 hearing and if they suspect fraud, they may pepper you with questions at that hearing that caused the court to continue the hearing to another date. They may also file litigation to object to your bankruptcy or to have their debt classified as nondischargeable, such as student loan debt.
- Slow property sales. As mentioned, the trustee is tasked with selling off your assets in order to pay off some of your debt. If you have assets that are not exempt, and which can be difficult to sell quickly, such as a second home or excess equity in your home, it may take time for the trustee to sell the property and distribute the funds. The case technically remains open until this is done and a final report is sent to the court.
- Nondischargeable or hard-to-discharge debt. As mentioned, some creditors may try to have their debt classified as nondischargeable. And, in the past, we’ve talked about the myth of student loan nondischargeability, which persists even in legal circles. While it is dischargeable, it is difficult to do so and you have to file litigation in order to prove that it is an undue burden to pay back that student loan debt. Bottom line: litigation is slow, and if you have to file or defend a second case as part of your bankruptcy filing, you can absolutely expect your bankruptcy to take longer until that second issue is resolved.
Chapter 13: A Long Payment Plan
We started with Chapter 7 filings, because most people choose that type of filing because it eliminates debt and they don’t have assets to protect. However, some people choose a Chapter 13 bankruptcy filing, which is more of a reorganization and repayment strategy than an elimination one. In a Chapter 13 filing, it may be possible to save your home (no matter how much equity it has), your car, and your other assets by working on a plan to get yourself current on your past due debt.
Another reason people choose to file a Chapter 13 is that they simply do not qualify for Chapter 7, typically because they make too much income. Those who failed the means test can still use Chapter 13 to repay some of their debt over time, rather than drowning in debt collection calls. The early stages of a Chapter 13 filing are very similar, timewise, to a Chapter 7 plan — filing, automatic stay, and financial education courses. However, this is followed by a lengthy repayment plan that can stretch for years.
A Chapter 13 payment plan lasts between three and five years on average. During that time, you make payments to the bankruptcy trustee who will distribute those payments to your creditors according to the repayment plan.
Avoid Mistakes and Delays With Expert Advice
While not all cases will be derailed by incessant questions from the trustee or litigation from a creditor, the best way to ensure that your bankruptcy case is resolved as quickly as possible is to ensure that you have an experienced, aggressive attorney pushing the case forward and pushing back against any attempts to stop it. You can talk to one of our network attorneys about your bankruptcy needs, and if it is a good fit, they can help you avoid mistakes and common delays that can extend your bankruptcy case and the stress that it entails far beyond the best-case scenario of three months.