Bankruptcy Process (Generally)
This post is intended to describe the overall process of filing a consumer bankruptcy. It is important to keep in mind that each bankruptcy case is unique. Some cases will follow this overview closely, while others may experience one or more complications.
Consumer Education Requirements
Federal law requires that individuals filing bankruptcy must complete two courses:
- The Consumer Credit Counselingcourse must be completed before the petition can be filed with the Bankruptcy Court. A course completion certificate must be filed with the petition.
- The Pre-Discharge Debtor Educationcourse must be completed before the deadline established by the Bankruptcy Court rules.
Only courses approved by the Bankruptcy Court will be accepted to fulfill the obligation. Both courses are available online.
Consumer Bankruptcy Process
Step One: Meet with an Attorney
While it is technically possible for an individual to represent themselves in a bankruptcy case, it is strongly recommended that an individual hire an experienced attorney. Bankruptcy law is quite technical, and the rules must be followed precisely.
During the initial meeting, the attorney will explain the general process and gather information regarding the prospective client’s financial situation. The attorney will also discuss the responsibilities of the debtor during bankruptcy proceedings.
Step Two: Information Gathering and Execute the Retainer Agreement
The “Retainer Agreement” is the formal contract between a client and their attorney. The Retainer Agreement sets forth the services the attorney agrees to provide in exchange for the specified amount of money the client pays. In a bankruptcy case, the Retainer Agreement must be provided to the Bankruptcy Court for its review to ensure compliance with the technical requirements of the Bankruptcy Code.
A prospective client has no hired an attorney until both parties have signed the Retainer Agreement and the client has paid the agreed-upon amount. Because a bankruptcy case deals with the rights of creditors, the agreed-upon amount must be paid in such a way that the attorney does not become a creditor. This is why bankruptcy cases must be paid in full prior to the filing of the petition.
The attorney will need specific information about the debtor’s financial situation. This may be collected in the form of a written questionnaire or through a website link the attorney provides to the client-debtor.
Step Three: Complete the required pre-filing Credit Counseling Course
The course completion certificate must be provided to the attorney so it can be filed with the petition.
Step Four: The attorney completes and reviews the petition
The attorney uses the information provided by the client and obtained from the client in the initial client interview. It is important that the debtor provides complete information, as only those debts listed in the bankruptcy petition can be discharged.
Step Five: The attorney files the petition
Shortly after the filing of the petition, the case is assigned to a trustee. The trustee will send a “Notice of Meeting of Creditors,” also known as a 341 Meeting.
Important: Once a creditor receives notice of the bankruptcy filing, they may not contact the debtor except in certain specific instances. In the meantime, debtors may inform collectors of their attorney’s name, office phone number, and bankruptcy case number.
Step Six: The debtor and attorney must attend the 341 Meeting of the Creditors
Attending the Meeting of the Creditors is mandatory. The debtor must bring satisfactory proof of identification and proof of social security number.
At the meeting, the debtor will be sworn in just like a witness in a courtroom. The trustee will ask the debtor a series of questions that the debtor must answer.
Step Seven: Complete the pre-discharge debtor education program
The course completion certificate must be provided to the attorney so it can be filed with the Bankruptcy Court before the court-ordered deadline.
Step Eight for Chapter 7 Cases: Discharge
Assuming all the requirements have been met, the Bankruptcy Court will issue an order discharging the debtor from all dischargeable debts that were listed in the petition.
Debtors filing under Chapter 13 or Chapter 12 have a couple more steps.
Step Eight for Chapter 13 and Chapter 12 Cases: Follow the Repayment Plan
Step Nine for Chapter 13 and Chapter 12 Cases: Discharge
Upon completion of the Repayment Plan, the debtor’s remaining dischargeable debts are discharged.
How long does the Bankruptcy Process take?
It depends on the complexity of the case and the type of bankruptcy.
Chapter 7 consumer cases typically take four to six months from filing to discharge. In many consumer Chapter 7 cases, all the debtor’s property is exempt under the federal or state exemption framework. These are referred to as “no asset” cases simply because there are no non-exempt assets to put in the bankruptcy estate. No asset cases generally take the least amount of time. When the bankruptcy estate has non-exempt assets, the trustee will sell, auction, or otherwise liquidate the non-exempt assets to pay creditor claims. This increases the amount of time the bankruptcy case takes.
Bankruptcy cases where there is a Repayment Plan (Chapter 13, Chapter 12) take substantially longer because the payments are spread over three to five years. The bankruptcy case remains pending until the Repayment Plan is complete.