Chapter 7 bankruptcy cases take between 4 – 6 months to complete after filing the case with the court. The order erasing eligible debts can be granted as early as 90 days from the date the case was filed. No-asset cases are typically closed a couple of weeks after the discharge date.
What is Chapter 7 Bankruptcy?
It’s a type of bankruptcy that erases your debts, to give you a fresh start. To file bankruptcy under Chapter 7 of the United States Bankruptcy Code you have to pass the means test. The means test shows the bankruptcy court that you’re eligible for debt relief because your monthly income isn’t enough to pay your unsecured debts in a Chapter 13 bankruptcy. Unsecured debt includes credit card debt, medical bills, and personal loans. Not all unsecured debts are dischargeable. Filing Chapter 7 does not erase child support or alimony. Student loans are only dischargeable if an undue hardship exists. If you own nonexempt property, the Chapter 7 trustee sells it and uses the funds to pay your creditors. Most people’s belongings are fully protected by the state or federal bankruptcy exemptions. Nothing is sold and no money is paid to creditors. That’s called a no-asset case.
How long does it take to file a Chapter 7 bankruptcy case?
There are a few things you’ll have to do before you can file bankruptcy. How long this takes depends entirely on how quickly you move through the steps. Some people take weeks or even months to get ready; others get it done in the span of a week. Here’s a breakdown of these pre-filing steps:
- Gathering information: You’ll need to collect some documents, like your tax returns and paycheck stubs so you can submit them to the court and/or the trustee. But, you’ll also need to have information about how much you spend on living expenses, what your assets are (essentially everything you own) and how much they’re worth.
- Taking credit counseling: This course has to be completed in the 180 days before your bankruptcy petition is filed with the court. It usually takes only 1 hour.
- Completing the bankruptcy forms: This is often the longest part of the process. Folks working with a law firm wait for the lawyer’s office to complete this step. Once done, they’ll meet with the bankruptcy lawyer to sign their forms. Folks filing on their own (“pro se”) can take several hours to fill out the bankruptcy forms. Upsolve users typically take a total of about 3 hours to provide the information needed to generate their forms.
- Filing the forms with the court: How long this takes depends on whether you go to the bankruptcy court in person or mail it in.
What happens on the day the Chapter 7 Bankruptcy case is filed?
The day you submit your bankruptcy forms to the court, sometimes called the filing date or the petition date, sets a few things in motion. For one, the automatic stay is triggered. This stops creditors from trying to collect a debt from you and even stops a garnishment. First, the clerk’s office assigns a case number, a judge, and a bankruptcy trustee to the case. Then it schedules the 341 meeting of creditors. The date of the 341 meeting determines a number of important deadlines for the bankruptcy case.
Chapter 7 Bankruptcy Case
Once the case is filed, the Chapter 7 bankruptcy process can be broken into 3 phases:
1. Filing Date 341 Meeting of Creditors
The 341 meeting is scheduled about 30 days after the petition date. The meeting itself typically takes less than 10 minutes to complete.
While waiting for your 341 meeting, you’ll likely hear from your trustee. They’ll let you know what documents they need from you to prepare for your 341 meeting. As long as you’ve kept the documents you used when preparing your bankruptcy forms, doing this shouldn’t take very long.
Most filers also get the financial management course out of the way while they wait for their 341 meeting. Bankruptcy law requires every person filing bankruptcy to complete this education course. It tends to be a little longer than the first course, usually around 2 hours.
2. 341 Meeting Date of Discharge
Remember how the date of the 341 meeting determines a lot of deadlines (read: important dates) for the rest of the case? Here is how it works:
341 meeting + 30 days = Deadline for the trustee (or creditors) to object to an exemption you claimed. This deadline starts when the 341 meeting is “concluded” which can be delayed if the trustee schedules a follow up meeting.
341 meeting + 60 days = Deadline for creditors to object to having their debt discharged. Creditor objections are not very common in typical Chapter 7 cases, but they do happen.
341 meeting + 45 days = Deadline to deal with secured debts, like car loans (if you want to keep the car).
Once the deadline to object to the discharge has passed, the court will enter the discharge order.
Can the discharge date be delayed?
Yes. If you don’t take your financial management course after filing and submit a certificate of completion, the bankruptcy court can’t grant your discharge. If too much time passes, the court can close your case.
Other Things That Can Delay The Entry Of The Discharge
- Someone objects to the discharge. This doesn’t happen at the 341 meeting (creditors rarely show up for those) but when the creditor files a written objection with the court. Objections from creditors can happen if the filer used their credit cards or took on new debt shortly before filing their bankruptcy case. The trustee can also object to the entry of the discharge (or at least request a delay). This typically happens if the filer is not providing the trustee with the information they requested.
- A reaffirmation hearing is scheduled. The United States Bankruptcy Code requires the court to review and approve reaffirmation agreements that are not signed by a bankruptcy attorney. Since hearings are set based on availability by the judge and a number of other factors, this hearing may not happen until after the 60-day objection deadline has passed. The discharge can’t be granted until after the reaffirmation hearing has been completed.
3. Discharge Case Closed
Once the bankruptcy trustee has determined that there’s no property they can sell for the benefit of creditors, they’ll file a Report of No Distribution. This lets everyone know that it’s a no-asset case and can happen anytime after the 341 meeting. No asset cases are typically closed by the court within 1 – 2 weeks or so.
If the trustee hasn’t filed a Report of No Distribution, the case will stay open until the trustee signals to the court that they’ve completed their work on the case. How long this process takes can vary greatly, as it depends on what kind of property the trustee is selling and what else is going on in the case.
In some cases, all the trustee is waiting for is the filer’s tax return for the year their bankruptcy case is filed in. If no specific exemption for a tax refund exists, a portion of the refund may be used by the trustee to pay creditors.
Usually, not much else is required from the filer during this process. But, if the trustee asks for additional information or otherwise requests assistance with the sale of property, the filer has a duty to help.
How long does a Chapter 13 bankruptcy take?
A Chapter 13 bankruptcy involves a repayment plan, so it takes quite a bit longer to complete. Typical Chapter 13 bankruptcy cases last 3 to 5 years. As part of the repayment plan, secured debts, like car loans are paid off. Depending on the type of debt you have, this type of bankruptcy may provide more debt relief than a Chapter 7 filing. It’s always best to speak to a bankruptcy attorney about a Chapter 13 filing, as there are many moving parts in the Chapter 13 bankruptcy process.
Rebuilding your credit after bankruptcy
Bankruptcy can be a low point in your financial life, but it’s not the end of the world.
Many people describe bankruptcy as a fresh start or a clean slate. If you approach it this way—with a determination to learn from past mistakes—you can start rebuilding your credit right away.
To do this, you can implement a number of credit repair strategies, although it’s best to pick one or two rather than attempting to take on every strategy at once.
Here are a few to consider:
1. Secured credit cards
Many people start the bankruptcy recovery process by opening a secured credit card.
With a secured card, you make a small deposit, which acts as collateral.
As you make purchases and pay them off, your creditor reports your on-time payments to the credit bureaus.
Many secured credit cards have an option to transition to an unsecured card with a higher limit after a certain period of time.
2. Credit builder loans
You can also apply for a credit builder loan, which can help boost your credit score.
With a credit builder loan, the lender deposits a certain amount of money in a sort of savings account, and you make payments into the account. (See our full Self Lender review).
Once you’ve “paid off” the balance, you get your money back, plus any interest your lender offers.
Basically, you pay yourself over time, and the lender reports your payments to the credit bureaus.
3. Become an authorized user
Another strategy for boosting your credit score is to become an authorized user on someone else’s account.
If you know someone (like a parent or spouse) with good credit, ask them to add you as an authorized user on one of their credit cards.
If you choose this strategy, you’ll want to make some kind of agreement to pay your share of the card balance.
You should also make sure the creditor reports your payment history to the credit bureaus—you can verify this by contacting the credit card company and asking if they report an authorized user’s payments to the credit bureaus.
Credit tips after bankruptcy
Here are some steps you might want to take to try to keep your bankruptcy from having a worse impact than it could on your credit reports and credit scores.
1. Make sure the right accounts were reported
After your debts are discharged, review your credit reports to make sure that only the accounts that were part of your bankruptcy are reported by the credit bureaus as “discharged” or “included in bankruptcy” on your reports. If you find mistakes, notify the credit bureaus and dispute the errors on your credit reports (it can take a couple of months for the accounts to be updated).
2. Work on rebuilding your credit with a secured card
After your bankruptcy, you might want to try to get a secured credit card. Making all of your payments on the secured card in full and on time and keeping your credit card utilization rate low could help you improve your credit over time.
3. Review your reports once the time is up
Once your bankruptcy has been completed and the seven- or 10-year clock has expired, review your reports again to make sure the bankruptcy was removed.
A bankruptcy should fall off your credit reports automatically, but if it doesn’t, notify the credit bureaus and ask to have the bankruptcy removed and your reports updated.