If you have more debt than you can possibly pay, bankruptcy may be your best option. A bankruptcy filing can eliminate many debts and give you a fresh start. It’s not easy, though: bankruptcy will cost money and take time. Let’s look at how long it takes to file for bankruptcy.
How long does bankruptcy take to file?
While the process of filing can be completed in a matter of days, the time it takes for the case to be resolved depends on the type of filing and the complexity of your case, but it can take as little as three months for a Chapter 7 case, or as long as five years for a Chapter 13. In either filing, you will need to set aside at least one full day to travel to the local courthouse to file your paperwork, and there are a few other steps that will take a few hours each.
How long does Chapter 7 bankruptcy take to file?
Chapter 7 is the simplest form of bankruptcy, but it still requires some preparation. You may be able to file in as little as two weeks after you decide that bankruptcy is the right choice for you.
Actually resolving your bankruptcy may take more time. A simple Chapter 7 bankruptcy may be discharged in as little as 90 days from the filing date, but you should expect to wait four to six months.
What is Chapter 7 bankruptcy?
Chapter 7 is the most common form of bankruptcy, representing 68% of consumer bankruptcy filings. It is designed for people with limited incomes who have no realistic way to pay their debts.
To qualify for Chapter 7 bankruptcy your current monthly income must be below your state’s median income. If your income is too high you can qualify by using a Means Test. The test must demonstrate that your income is not high enough to let you pay your debts.
You cannot file for Chapter 7 bankruptcy if you have had a prior bankruptcy petition dismissed in the last 180 days.
Chapter 7 bankruptcy is often called “liquidation bankruptcy”. Your assets may be sold to pay your creditors. Assets that are considered necessary to maintain a minimal standard of living will not be sold. These are called exempted assets. Non-exempt assets can be seized and sold to pay your debts.
The sale of assets is rare. About 96% of Chapter 7 cases do not involve any collection and distribution of funds.
At the conclusion of a Chapter 7 bankruptcy most of your unsecured debts, like credit card debt, medical debt, payday loans, and personal loans, will be discharged. You will no longer have to pay them.
How long does it take to file a Chapter 7 bankruptcy case?
Bankruptcy is a complex process, and there are steps you will have to take before you file. Here’s what you’ll need to do.
Consult a bankruptcy attorney
Filing for bankruptcy without a lawyer is possible, but it’s risky. The forms and requirements are complex, and if you make a mistake you could lose assets or even have your bankruptcy petition dismissed.
Most bankruptcy lawyers offer a free initial consultation. Take advantage of it. They will help you decide whether bankruptcy is the right move for you and whether you will qualify for Chapter 7. Speak to several lawyers and select one that you feel comfortable working with.
If you can’t afford a bankruptcy lawyer, you have a few options, which we will review later.
Calculate bankruptcy costs and set up a budget
These are some of the costs of filing for bankruptcy:
- Filing fees ($338)
- Two bankruptcy education courses (maximum $50 each)
- Copying costs. You will have to make multiple copies of each form. Consider using a local library or office supply store to save money.
- Attorney (average $1,450 but varies with your location and the complexity of your case)
If you are under severe financial stress some fees may be waived.
You’ll need to calculate your costs and be sure that you have money set aside to pay them.
Get your records ready
You will need to document your income, assets, and debts. Check all of your financial records and collect your pay stubs, bank and credit account statements, and any other relevant documents. A free consultation with a bankruptcy lawyer can help clarify what you need.
Don’t try to cheat by hiding income or transferring assets out of your name. Your petition could be dismissed and your fees will be forfeited. Bankruptcy trustees know all the tricks and they look out for them.
Take your initial credit counseling course
You must complete a credit counseling course before you file for bankruptcy. The course can be completed online or over the phone. You will review your financial situation with a counselor, who will help you decide whether bankruptcy is the best choice for you.
The course must be completed within 180 days before your filing. If you wait longer than this you will need to take the course again. Your filing will not be accepted without the course certificate.
Fill out your forms
Bankruptcy is all about forms. There are a lot of them and they must be completed correctly. There’s a list of forms required for Chapter 7 bankruptcy here. You will need multiple copies of most forms. The Clerk of Court at your bankruptcy court will tell you how many.
If you have retained a lawyer, the lawyer will complete your forms. If you haven’t, consider using a tool like Upsolve. It’s a free app that will ask you simple questions and generate a complete set of forms for a simple Chapter 7 bankruptcy based on your answers.
File your petition
You will file your completed petition with the Clerk of Cout at the bankruptcy court that has jurisdiction in your area.
Bankruptcy courts are administered by the federal government, so the process and the rules don’t change from state to state.
What happens on the day the case is filed?
The filing process is straightforward. The Clerk of Court will check your documents to see if they are complete. You will be assigned a case number, a bankruptcy trustee, and a judge.
A meeting of creditors will be scheduled
Your trustee will schedule a meeting with you and your creditors, called a 341 meeting. The schedule of the meeting will establish the timeline for the rest of your bankruptcy case.
An automatic stay will be triggered
A bankruptcy triggers an automatic stay on all collection efforts. Creditors and debt collectors must stop all contact with you. If your wages are being garnished, the garnishment will stop. Foreclosure or eviction proceedings will also stop.
Bankruptcy timeline: Here’s what comes next
Once your petition is filed and accepted, the process follows defined steps.
Your meeting of creditors will take place
The creditors meeting or 341 meeting is an opportunity for your bankruptcy trustee to explore your case and ask questions.
Your creditors can also appear and contest the discharge of a debt. This is rare, and almost all 341 meetings do not involve a creditor appearance.
The filing and the 341 meeting are usually the only times you will have to appear in person for a bankruptcy proceeding.
After your creditors meeting
The 341 meeting establishes the timeline for the rest of your bankruptcy proceeding.
- 30 days after the meeting is the deadline for your trustee or a creditor to file an objection to any asset exemptions claimed in your petition. This deadline can change if your trustee schedules another meeting, but this is rare.
- 45 days after the meeting is the deadline for you to negotiate a payment plan for any secured debts (like a car loan) that will allow you to keep the asset.
- 60 days after the meeting is the deadline for creditors to object to the discharge of their debt.
Objections from creditors are rare in Chapter 7 cases, but they are possible.
The most common source of an objection is debt incurred immediately before you filed for bankruptcy. This may appear to be a deliberate attempt to take on debt and then have it discharged. Avoid taking on loans or using credit cards once you have decided on bankruptcy.
You must complete a financial management course
You must finish a second counseling course before your bankruptcy can be completed. This course will focus on helping you understand the factors that caused your bankruptcy and give you the tools to avoid these problems in the future.
The trustee will begin liquidation of some of your property
If you have non-exempt assets, the bankruptcy trustee will supervise their sale and the distribution of the proceeds to your creditors.
Exempt assets usually include:
- A car, up to a certain value.
- A home or a portion of home equity.
- Necessary clothing, household goods, appliances, and furnishings.
- Tools of the debtor’s trade or profession.
- Public benefits or damages awarded for injury.
If you have valuable collectibles, investment accounts, or a second car or home, these may be non-exempt.
A discharge order will be entered
The court can delay the discharge for several reasons.
Once all requirements have been completed, the court will enter a discharge order. You will no longer have to pay the discharged debts.
Can the discharge be delayed?
- Failure to complete the required counseling course. The course is a requirement and your debts will not be discharged if you don’t complete it. If you wait too long your case could be dismissed. You will forfeit your fees.
- An objection to the discharge. Creditors or your trustee may object if you have hidden income or assets, taken on debt with the intent to have it discharged, or failed to provide requested information.
- A reaffirmation hearing is scheduled. A reaffirmation agreement allows you to keep a debt after bankruptcy. It is often used for a car loan if you want to keep the car. If your agreement is not assigned by a bankruptcy attorney a hearing will be required.
- A delay in the trustee’s report of no distribution. The trustee’s report is a key component of bankruptcy. It may be delayed if the trustee is waiting for additional information, often your latest tax return.
Your trustee will inform you if you are required to submit additional documents to close your case.
How long does Chapter 13 bankruptcy take to file?
If your income is sufficient to pay off some of your debts, you will not be eligible for Chapter 7 bankruptcy. If this is the case, Chapter 13 bankruptcy is an option.
A Chapter 13 bankruptcy is more complex and takes longer to resolve. The process can take from three to five years.
What is Chapter 13 bankruptcy?
Chapter 13 bankruptcy is often called “reorganization bankruptcy”. Your trustee will set up and supervise a payment plan that will clear your debts within a fixed time, usually 36 or 60 months.
As long as you comply with the payment plan, you are protected from collection efforts, wage garnishment, foreclosure, and repossession. If you fail to comply with the payment plan, your bankruptcy will be dismissed and the protection will end.
Unsecured debts that have not been fully paid at the end of the payment plan may be discharged. Non-dischargeable debts, like child support, alimony, most student loans, or some tax debts, must be paid in full.
What actually happens when you file for bankruptcy? Watch this to learn more:
Will you be debt-free after bankruptcy?
Not all debts can be discharged in bankruptcy. Most unsecured debts, like credit card debt, medical debt, personal loans, or payday loans, will be discharged. These debts will not be discharged in bankruptcy:
- Child support or alimony
- Most tax debts
- Most student loans
- Some debts from criminal fines
Secured debts, like car loans or mortgages, are a special case. Bankruptcy can discharge the debt, but the lien on the property will remain, which means that you could still lose the asset to repossession or foreclosure. If you wish to keep these assets you may need to negotiate a reaffirmation agreement with the creditor.
Do I need a bankruptcy attorney?
An attorney is not required for a bankruptcy case, but there are significant advantages to retaining one, and it can speed up the resolution. Bankruptcy is a complex process, the forms are detailed, and any mistake can lead to dismissal.
According to Debt.org, people who file Chapter 7 bankruptcy with a lawyer achieve discharge in 96.2% of cases. People who filed without an attorney had only a 66.7% success rate.
Most bankruptcy lawyers offer a free initial consultation. Before you choose a lawyer or decide to file for bankruptcy without one, try consulting with several lawyers. You’ll learn a lot about the process and whatever decision you make will have an informed basis.
How will bankruptcy affect my credit score and credit report?
Bankruptcy is a fresh start, but it isn’t a free pass. A Chapter 13 bankruptcy will remain on your credit report for seven years and a Chapter 7 bankruptcy for up to ten years.
Bankruptcy can do significant damage to your credit score. How much damage it does will depend on your credit score. The higher your credit score before bankruptcy, the greater the impact will be.
If you have a credit score over 700, you may see a drop of 200 points or more. If you start with fair credit in the high 600s, expect to lose 130-150 points. If your credit is already poor (which is often the case with people who file for bankruptcy) the drop will be much smaller.
The damage to your credit is not permanent. The bankruptcy will remain on your credit report for years, but new records get more weight than old ones, and once your debts are discharged you have the opportunity to manage your finances better and build a better credit record.
The bottom line
Bankruptcy is not quick, easy, or cheap. It will take you at least two weeks to prepare for a Chapter 7 bankruptcy filing and several months to conclude the process. It may still be the best option if you have no realistic way of paying your debts.
If you’re not sure whether bankruptcy is the right move for you, a session with a credit counselor or a free consultation with a bankruptcy attorney can help you clarify the issues and make an informed decision.
Websites like LegalMatch and FindLaw can help you locate bankruptcy attorneys in your area, or you can ask your state’s bar association. If you may not be able to pay an attorney, try the federal government’s legal aid page, your state’s bar association, or free legal clinics in your area, or use the Upsolve free bankruptcy app.
Your credit score is a financial report card. If you have bad credit you may not be approved for loans or credit cards, and if you are approved you will pay high interest rates. Buying a house or car may be very expensive or impossible. It may be difficult to rent an apartment and utility companies may ask for large deposits before giving you service.
Chapter 11 bankruptcy allows a debtor to reorganize or restructure debts. It is the most complex and expensive form of bankruptcy and is usually used by corporations, large businesses, or wealthy individuals.