How Long Does Chapter 7 Bankruptcy Take?

The short answer to the question is it takes anywhere between four to six months for a Chapter 7 bankruptcy to close after the petition has been filed. The reason for the variation in the time table comes down to the complexity of the assets you own, the creditors that you owe, and if corrections are necessary while the Chapter 7 filing is in progress. Here’s a look at the process of filling for bankruptcy, and how it affects the timeline after the petition has been submitted.

How a Chapter 7 Bankruptcy Works

The basic concept of bankruptcy is that of asking the federal bankruptcy court to review your debts against your ability to pay them, and ask for a discharge of what you owe. The court has to make an attempt that your creditors get something from your bankruptcy estate, which means it performs an investigation into your debts and assets during the process. It also informs your creditors of your bankruptcy and bars them from making collection attempts while your petition is active.

Chapter 7 is known as a liquidation bankruptcy because it requires you to surrender your valuable assets to the trustee and see them sold off for debt repayment. However, if you don’t have assets with value, and your income is below the median, you can still file a Chapter 7 bankruptcy and have it accepted by the court.

Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy

Consumers tend to file under Chapter 7 or Chapter 13, depending on their assets and income. Chapter 13 is seen as being less desirable because it can last up to five years and requires a repayment plan to partially repay creditors before a discharge is granted. In contrast, a Chapter 7 bankruptcy is completed in a few months, has no repayment program, and you can start rebuilding your financial life in less time.

How to Get Started Filing a Chapter 7 Bankruptcy

In order to start filling for bankruptcy, you need to gather all of your financial paperwork together and create a list of your assets. Once you’ve collected all of your papers, you fill out the means test that determines which chapter of bankruptcy you can file under. After you’ve determined that you can file under Chapter 7, you can fill out the petition.

You’re required to take a credit counseling course by an approved provider before you can file your petition. After you’ve successfully completed the course, you’ll receive a certificate of completion that needs to be included with your petition.

It’s worth noting that a bankruptcy filing is a complex process, and it’s a good idea to work with a bankruptcy lawyer. The lawyer has experience with the bankruptcy process, and makes sure that your petition is correct, helps you with exemptions, and represents you during the 341 hearing.

Filling for Bankruptcy

Upon completion and review of your petition, you can file it with the bankruptcy court. Bankruptcy is a legal action that’s done at the federal level as this ensures no creditor can claim they’re exempt from your petition. You’ll file your petition with the local branch of the federal bankruptcy court.

The Automatic Stay

Once the court accepts your petition for review, the automatic stay goes into effect. The automatic stay prevents creditors from contacting you while the bankruptcy is active, and is essentially a temporary restraining order. If you receive a discharge, the automatic stay becomes permanent.

The 341 Meeting With the Trustee

When you file for bankruptcy, your assets are called an estate for various reasons. The trustee has the role of overseeing your estate and investigating your assets. This is why it’s important to list all of your assets as the trustee is capable of finding anything that’s been left off the petition, and threaten your ability to achieve a discharge of your debts.

Retaining a bankruptcy lawyer helps you learn about protecting your assets legally, while satisfying the trustee that your need for debt relief is genuine. You’ll have a better outcome with legal assistance at your side.

Reaching the Discharge Date

The court sets a discharge date after you’ve filed for bankruptcy, and this is typically set for a period of time after the 341 hearing. The waiting period is to give creditors a chance to object to your bankruptcy, or file a claim against your estate.

If no objections or claims are filed, your Chapter 7 bankruptcy is complete and discharged on the date that the court set. The automatic stay becomes permanent, and no creditor can attempt to collect on their debt going forward. If a creditor does make an attempt, they can be held liable in court and pay you a fine for their behavior.

Once the discharge date has passed, you are free from your old debts, and can start rebuilding your financial picture and credit score.