New clients often ask me: how long does a Chapter 7 bankruptcy take? The short answer: it depends. It depends on how quickly the client organizes their information and documents; it depends on whether it makes sense to postpone filing to protect some assets that would be otherwise taken; and it depends on the Bankruptcy Trustee (the equivalent of the judge in a bankruptcy). I very rarely have a bankruptcy take less than 4 months from start to discharge, or longer than 8 months. The average for my clients is 5-6 months.
Here are the steps in the process and how long they can take:
1. Signing Retainer and Paying Fees
The chapter 7 bankruptcy begins when my client signs the retainer agreement between us (outlining what our mutual obligations are, what I will do and how much it will cost) and pays my fee in full. Bankruptcy law does not allow me to be a creditor in a bankruptcy, so I cannot extend credit. I’ve also written before about the questionable ethics of lawyers who accept credit card payment for a bankruptcy (knowing the credit card company will not be paid).
By the time a client signs the retainer and pays me, they’ve often been considering bankruptcy for some time. Occasionally, I’ll have an initial consult with someone and they’ll hire me a day or two later. But, more frequently, a potential client meets me with, then considers what they want to do for several weeks to several months. If a client expresses interest during our consultation in moving forward with bankruptcy, I almost always send them a retainer within 24 hours. How long they take to sign it is, of course, up the them.
2. Completing Bankruptcy Questionnaire
When I send a client the retainer agreement, I also send them my Bankruptcy Questionnaire. Bankruptcy requires a debtor to disclose everything they owe, own and make to the Bankruptcy Trustee. The Questionnaire guides my client in providing the information on their debts, assets and earnings that I need to prepare the Bankruptcy Petition – the legal documents that are filed with the US Bankruptcy Court. People filing bankruptcy also must have completed a Credit Counseling class; I send my clients to Allen Debt and Credit Counseling, an on-line provider. The certificate of completion is filed with the Bankruptcy Petition.
How long a client takes to complete the Questionnaire is up to them. It’s a long document and requires gathering everything about a person’s finances (check it out 2022 Bankruptcy Questionnaire). As a result, my clients rarely return the Questionnaire in less than a week, but few take more than a month.
3. Preparing Draft Petition
Once a completed Questionnaire is returned, Faucher Law elves enter the information into special software (we use Best Case) that generates the schedules of the bankruptcy petition. I hire only the best elves (like Sebastian the Feline Paralegal), so I’m typically able to get a draft of the petition to clients within 3-5 days. However, that’s only if the Questionnaire is filled out thoroughly and there’s no or little missing information. If there’s missing information, then it takes as along as it takes my client to get us what we need.
4. Discussing Draft Petition with Client
I schedule a meeting to discuss the draft with my client as soon as the draft is done. I’m doing three things in that meeting: First, ensuring everything entered in the petition is accurate, and filling in missing information. Second, making sure the client meets the “means test” – the income threshold to qualify for the bankruptcy. This is only an issue for clients whose income is very close to that threshold. When that’s the case, I sometimes recommend waiting to file, particularly if their income is likely to be lower in coming months, or has been usually high in the past few months.
Third, making sure assets that could be taken by the Bankruptcy Trustee are minimized. Most often that’s more than about $2,000 sitting in a checking or investment account on the day of the bankruptcy filing, unless the debtor is claiming the Wildcard Exemption, in which case up to about $30,000 in assets the debtor chooses is allowed to come through bankruptcy. The Homestead Exemption allows debtors to take and keep their house through bankruptcy, under certain conditions. Sometimes, in order to reduce the amount of money in an account, I recommend the client prepay a few month’s rent or car payments, or put some of the money into a retirement account (which can be taken through bankruptcy). Doing this can often delay the filing of the bankruptcy by several months. Read more about this form of Bankruptcy Planning here.
5. Filing the Bankruptcy Petition
If there are no or few changes to the Bankruptcy petition, then I usually file it with the US Bankruptcy Court within 1-2 days of the discussion of the draft with my client. Some clients need to get me additional information, however, which often takes several weeks.
6. Attending the 341 Meeting of Creditors
As soon as the Petition is filed, I receive a date for the 341 Meeting of Creditors. This is the meeting during which the Bankruptcy Trustee questions my client and me about the information in the petition. A debtor’s creditors may also show up at the 341 Meeting but they rarely do in chapter 7s. The 341 Meeting are currently being scheduled 4-6 weeks after a bankruptcy is filed. Read more about 341’s here.
During that time, clients need to take a second Financial Management course, and provide me with the documentation that the Bankruptcy Trustee requests to substantiate the petition.
In most chapter 7 bankruptcies, the first 341 Meeting is the only time my client meets with the Trustee. The meeting normally takes 5-10 minutes and, if the Trustee has no further questions or reservations about whether my client meets the requirements for bankruptcy, my client is told to “have a nice life” (seriously). But Trustees can and do ask for additional information, in which case they “continue” the case and schedule a second Meeting of Creditors. That second meeting usually takes place 2-4 weeks after the first one. Continuations rarely occur for people with W2 or Social Security income; they tend to occur for people with non-W2 income, such as self-employed or small business owners, where proof of earnings can be harder to establish, or people with unusual assets or debts.
7. Getting the Bankruptcy Discharge
If the 341 Meeting goes smoothly, then a 60-day clock starts. By law, the Bankruptcy Trustee must wait at least 60 days to issue the Discharge, or the legal paper saying the debtor’s debts have been erased. How long it takes to receive the Discharge – the last step in the process – depends on the Trustee. But Discharges are typically issued 2-3 months following the 341 Meeting.
Considering Bankruptcy? Call me.
April 5, 2023