Many people are surprised to learn that a Chapter 7 bankruptcy case typically takes only four to five months to complete. This timeline, however, can vary depending on where you file your case because bankruptcy courts set up slightly different procedures. In addition, several issues can arise that can extend the length of your Chapter 7 bankruptcy.
For most people, filing a Chapter 7 case will allow them to discharge (eliminate) eligible debt. Not all debt is eligible and dischargeable, but most credit card accounts, medical bills, and personal loans will be wiped out, giving you breathing space and an opportunity for a fresh start.
Unlike Chapter 13 bankruptcy, a Chapter 7 case requires no repayment plan. Instead, you'll be required to turn over any property that you can't protect (keep) as exempt under state or federal law. A trustee appointed by the court will sell any nonexempt property and distribute the proceeds to your creditors who have filed proper claims.
The entire Chapter 7 timeline can be as short as three months, but it typically takes four to five months to accomplish without any hitches. If issues arise, the case can take longer.
All Chapter 7 bankruptcy cases begin with the filing of the case and end when the case is closed by the bankruptcy court. Let's review the six steps in a typical Chapter 7 bankruptcy case. Then we'll talk about some of the special situations that can hold up a discharge and prevent a case from closing.
Here are the steps for a typical Chapter 7 case that would be filed by an individual or a couple, where no assets are available for creditors.
Your Chapter 7 case begins when you file your bankruptcy petition with the bankruptcy court. As soon as you file your case, the court assigns it a case number and the automatic stay goes into effect. The automatic stay prevents your creditors from attempting to collect on the debt that you owe while you are in your Chapter 7 bankruptcy.
Once you file your case, the court will schedule your meeting of creditors, often referred to as your "341 meeting" (so named after the code section in the bankruptcy code). Most courts schedule the meeting for four to six weeks after the day you file.
(Learn more about bankruptcy's meeting of creditors.)
During the 60-day period after the 341 meeting, the trustee will review your case to determine whether you have any nonexempt assets. Most individual bankruptcy filers are able to protect all of their assets and don't have to be concerned that they'll be required to turn anything over to the trustee. If your estate has no assets for the trustee to administer, the trustee will file with the court a "no asset" report. This signals to the court that the trustee has no issues with the case and considers the case ready to close.
(Learn more about a "no asset" case.)
Within 45 days after your 341 meeting, you must take a financial management course (also known as the debtor education course) and file a certificate of completion with the bankruptcy court. This requirement is in addition to the credit counseling course that you take before you file for bankruptcy.
If you don't take the course, or if you fail to file the certificate of completion, the court will not enter the discharge order—in other words, if you want to get out from under your debts, you will have to go to school. The debtor education program is administered by the Office of the U.S. Trustee, which keeps a list on its website of approved providers by state.
(Learn more about the financial management course.)
The court must wait 60 days after the first date on which your meeting of creditors is scheduled before it issues your discharge. Your meeting can be adjourned to another date or rescheduled, but the 60 days still run from the first setting.
(Learn more about the bankruptcy discharge.)
Although the discharge is the goal for most people who file Chapter 7, it isn't the end of the case. The actual closing of the case is a separate – and final – step in your bankruptcy. Often, courts will close the case at the same time that it issues your discharge. Some courts have different administrative procedures and wait up to a few weeks before they officially close the case, even when there are no issues that could hold up closing.
Some cases don't follow the normal discharge-then-closing pattern. Even when the court has issued the discharge order, it can delay closing if it encounters inconsistencies or deficiencies in the paperwork or objections from creditors, among other issues. Read on to learn more about how a delay can arise.
(Learn more in When Is My Bankruptcy Case Over?)
Special circumstances might delay your case by days, weeks, or in rare instances, years. The most common things that delay a case include:
We'll look at each of these factors below.
Failure to complete the financial management course within 45 days after your 341 meeting can delay your discharge and the closure of your case.
In the worst case, the court will close your case without granting your discharge. This means that you leave your bankruptcy still owing your debts. Although you can usually reopen your case to file the certificate showing that you completed the financial management course, you'll have to pay an additional filing fee. Your attorney will likely charge you an additional fee, too. Some courts also require that you appear before the judge to explain why you delayed filing your financial management certificate.
(Learn more about the financial management course.)
You'll give the trustee a lot of information in your bankruptcy schedules and through testimony at your meeting of creditors, but many times the trustee will want additional information that you haven't provided. For instance, trustees often ask for copies of bank statements, documents evidencing the sale or transfer of assets, business records, and insurance policies. The trustee might adjourn the 341 meeting to give you a chance to gather them. If you don't supply the documents in a timely manner, you can delay the entry of your discharge.
When you file your bankruptcy paperwork, you'll claim that some (or all) of your property is exempt, meaning that you get to keep that property and it won't be turned over to the bankruptcy trustee to sell for the benefit of your creditors.
(Learn about objections to exemptions in bankruptcy.)
The trustee can also challenge your right to a discharge. A challenge is likely if you fail to cooperate with the trustee, refuse to turn over vital documents, commit perjury at your meeting of creditors or in your bankruptcy paperwork, or interfere with the sale of your assets. The trustee will file a motion with the court before the court has entered your discharge. In some cases, the trustee can file a motion to revoke your discharge even after it's been entered.
(Learn more about objections to the bankruptcy discharge.)
Creditors can ask the court to deny your general discharge, but they're more likely to ask the court to declare that creditor's debt is not dischargeable. Those objections often involve an allegation of fraud or some other wrongdoing on your part or an assertion that the debt you are attempting to discharge is not dischargeable for other reasons.
(Learn more about creditor objections to dischargeability.)
If the trustee or a creditor challenges your general discharge, the court will not enter your discharge order until the challenge is resolved. If a creditor objects to the discharge of a particular debt, the court will usually enter the general discharge with the understanding that the particular debt will be discharged only if the court determines that it is dischargeable.
(Learn more about bankruptcy trustee objections.)
To protect a car or other property that secures a loan, you will file a reaffirmation agreement with the bankruptcy court. The reaffirmation agreement essentially takes the loan out of the bankruptcy so that it is not discharged. Therefore, to be effective, the reaffirmation agreement must be filed with the court before the discharge is entered.
When the parties need additional time to negotiate the terms of the reaffirmation, either the debtor or the creditor will file a motion to delay entry of the discharge until the reaffirmation is on file and approved.
If the trustee has identified an asset that might be sold in your case, the process of valuing that asset, acquiring it from you, and selling it, will almost certainly delay the closing of your case, but it probably won't delay entry of the discharge.
Example. Let's say the trustee plans to sell a piece of real property you own. The trustee must list the land with a realtor, show the property, and negotiate and close the sale. Once you add the additional time necessary for the trustee to have that sale authorized through the court, gather claims from your creditors, and pay them, the whole process will add a significant amount of time to your case.
the trustee is able to sell or acquire the asset quickly, this process could add just a few months to your case. But if the trustee has difficulty acquiring or selling the asset, Trustees have been known to keep cases open for months or even years when the value of the property is rising. That way, when they sell the asset they can get top dollar and have more proceeds to pay on creditor claims.
The court won't close the case as long as the trustee is holding property, but that won't prevent the court from acting on the discharge. As long as you have fulfilled all your obligations to the court, cooperated with the trustee, and have no challenges to your discharge, the court will enter your discharge order when the 60-day waiting period has passed.
While it may be frustrating to have the case linger on, keep in mind that once you receive the discharge, you are no longer liable for your dischargeable debts.