Chapter 7 bankruptcy, a code of federal laws (Title 11 of the United States Code) designed to assist those who find themselves unable to repay their debts, has offered the opportunity for a fresh financial start to millions of Americans. Having to deal with the consequences of spiraling debt is a very stressful situation that affects the daily lives of many people in the U.S. While it is true that an individual Chapter 7 case usually results in a discharge of debts (the obligation to pay certain debts is wiped out), it is vital to remember that, even so, the right to a discharge is not absolute, and some types of debt may not be discharged. Moreover, a bankruptcy discharge against an individual does not extinguish a lien on property [1].
In view of the above, it is worth considering whether the possibility of declaring bankruptcy under Chapter 7 is the best option for your particular circumstances. In addition to finding out what the process entails and exploring if this is the right way forward for you, another key question is how long a Chapter 7 filing for bankruptcy is likely to take.
Although the time it will take to complete a Chapter 7 bankruptcy in New York and have your debts discharged will depend on your individual situation, the good news is that—in general—a Chapter 7 bankruptcy usually takes about 5-6 months to complete once filed.
Nevertheless, before filing your case with the court there are several steps you will need to take, including deciding whether Chapter 7 bankruptcy is the best course of action for you. Accordingly, the question of how long this pre-filing period will take is something that depends entirely on how swiftly you will end up moving through these steps.
Preparing for Filing Chapter 7 Bankruptcy
Pursuant to the United States Bankruptcy Code [2], you will need to satisfy a “means test” to file bankruptcy under Chapter 7. This “means test” just looks at whether someone “has the means” to repay some, or all, of their debt in a Chapter 13 repayment plan. If so, they are ineligible for Chapter 7 and must file under Chapter 13, which is required to be at least as expensive as Chapter 7 and, almost always, will be considerably more. While the process itself is relatively straightforward, the assistance of a bankruptcy attorney will make sure you get the most out of your case. They will review your finances, explain which Chapter is best for you, assist you with filing, claim the proper exemptions to protect your property, and give you the peace of mind of having someone familiar with how bankruptcy works help you through the process.
Once you decide to file Chapter 7 bankruptcy, but before being able to do so, you will need to follow the steps below.
1. Gather All Necessary Information
It is important that you collect all documents required by the court in preparation for filing. Specifically, the trustee that will be appointed by the court after you file your petition will generally want to have copies of your last two years of income tax returns, at least three months proof of income (called “pay advices,” which generally means pay stubs, but can include Social Security or disability award letters, unemployment, and anything else that shows you received payment), and six months worth of bank account statements.
Additionally, as you will have to submit a number of detailed forms, you will also need to determine what you actually own and its corresponding value, as well as how much money you spend, and on what. This stage, where you prepare for your case, is perhaps the most decisive one in terms of what you can do on your end to contribute to everything going smoothly and quickly.
Consequently, not being sufficiently diligent in complying with the requirements of this preparatory stage, which can—by their very nature—be quite time-consuming, may significantly slow down the progress (and ultimate conclusion) of your case.
2. Receive Credit Counseling
Under the relevant provisions of the Bankruptcy Code, no individual may be a debtor under Chapter 7 (or any chapter of the Code, for that matter) unless they have, within 180 days before filing, received credit counseling from an approved credit counseling agency, either in an individual or group briefing [3].
The course takes approximately 60-90 minutes to complete and can cost around $50 (as of 2022), but counseling agencies are required to provide pre-bankruptcy credit counseling at no charge in cases of financial hardship. A list of approved courses can be found on the US Department of Justice website [4]. Roemerman Law has a relationship with Debtor CC/Debtor EDU and we simply send our clients a link to the course, where it is only $19.95.
It is recommended that you take a credit counseling course as a first step following the determination of your eligibility for Chapter 7. Not only will the judge reject the filing without a certificate of completion, but it is also required before any of your debts can be discharged. Don’t dismiss this course as a mere formality: it is meant as a way to help you manage your finances better in the future by helping you understand income, expenses, taxes, fees, interest rates, and credit cards. The course also aims to make sure that filing Chapter 7 bankruptcy is your only option. If a repayment plan is developed for your case by the agency, you will have to submit it along with your other information for the court, irrespective of whether you agree with it or not. The credit counseling certificate is valid for six months.
3. Complete Extensive Paperwork
When you file for Chapter 7 bankruptcy, the “automatic stay” comes into play and your creditors will stop trying to seize your assets and income during the process. Filing for bankruptcy involves the completion of forms that state your assets, including those you want to exempt from the bankruptcy estate, your creditors and the amount of debt owed to each, and your income, as well as anything else that is in your name (rents, leases, other income, pay stubs, etc.). It is vital that you disclose all your sources of income to avoid any unpleasant surprises.
In addition to the “voluntary petition” Form 101 itself, where you will set out the reasons for filing, you will need to fill out several other forms required by one of the four United States bankruptcy districts that handle cases filed in New York State. The court that will deal with your case will be determined based on the district in which you have been living for the greater part of the 180-day period before you file or that where you are domiciled. The various bankruptcy forms required for filing your case are available through the official United States Courts website [5].
In general, debtors seeking to declare bankruptcy under Chapter 7 must file with the court:
- Schedules of assets and liabilities.
- A schedule of current income and expenditures.
- A statement of financial affairs.
- A schedule of executory contracts and unexpired leases.
As mentioned above, debtors must also provide the assigned case trustee with a copy of the tax return or transcripts for the most recent tax year and tax returns filed during the case, including tax returns for prior years that had not been filed when the case began. They will also need to provide the certificate of credit counseling and a copy of any debt repayment plan developed through the course. Lastly, they are expected to submit a statement of monthly net income and any anticipated increase in income or expenses after filing, and a record of any interest the debtor has in federal or state qualified education or tuition accounts [6].
As the packet includes no less than 23 federal forms to fill out, excluding any that may be required by your specific state, you may find yourself feeling intimidated by the sheer volume of paperwork necessary before you can file your case with the court. Nevertheless, this task needs to be completed as thoroughly and speedily as possible. Tardiness or noncompliance in getting the proper documentation to the trustee may lead to delays in the completion of your case, or even a dismissal of the case. To that end, you may consider hiring an attorney to deal with the paperwork, overseeing that all forms are completed to the court’s satisfaction.
4. Pay the Filing Fee
Once you have everything in order towards filing, you will need to pay a bankruptcy fee, currently set at $338 (as of 2022). The fee is required, though you can file to pay in installments or have it waived for hardship reasons, though that will be very difficult to have approved if you are paying for the services of an attorney. Regardless, it is important to pay the fee as soon as possible when, or shortly after, filing. If you have an attorney, he or she should collect the fee from you and pay the court when (s)he next opens your case in the federal court filing system, known as “PACER” (Public Access to Court Electronic Records).
Post-Filing Process for Chapter 7 Bankruptcy Petitions
Following the filing of your petition, your case will follow the basic timeline described below.
1. Appointment of a Trustee and a Judge
The court will appoint an impartial trustee who will administer your case, as well as a judge who will oversee the case and become directly involved as needed. The trustee will oversee all the pertinent administrative functions, conduct the meeting of creditors, and generally take all necessary action to ensure compliance with applicable laws and procedures. The judge signs the final order discharging debts and closing the case, as well as overseeing any disputes, which are handled in separate cases known as “adversary proceedings.” Often, debtors filing for bankruptcy have limited to no interaction with the judge, but they will interact with the trustee at least once, if not more frequently, regardless of whether a lawyer is representing them.
Effective preparation before filing truly pays off during this stage. If all necessary information has been compiled and the required bankruptcy forms have been completed and filed properly, the trustee will be far better positioned to work through your case quickly. The real state of your finances will be evident right away and, more importantly, the trustee may be more inclined to help you out. In contrast, badly filed paperwork and undisclosed income sources could, potentially, leave you in a worse position than you were in before filing, as well as causing delays.
2. The “Meeting of Creditors,” aka the “341 Meeting”
The Meeting of Creditors, or the “341 Meeting” as it is commonly referred to because of its place in section 341 of the Bankruptcy Code, takes place around 30 days after filing your petition. It is required to be held within 20-50 days of filing, but New York is pretty consistent about setting it around a month after the petition is filed with the court. This is one of the most important events after filing a Chapter 7 bankruptcy. The trustee will be in touch with you or your attorney prior to it, to inform you of what documents will be required on your end. Once again, it must be noted that this process is more likely to be seamless if you have filed your petition correctly and included everything necessary, thus careful preparation remains key.
The meeting itself, which is scheduled by the court, will also be open to your creditors, who are welcome to attend—but rarely do. Most major creditors, such as credit card companies and auto lenders, do not want to pay legal fees to interview a debtor in a straightforward filing. Its main purpose is to offer the trustee and any creditors who attend the opportunity to ask any questions that they may deem necessary to confirm your identity, make sure that you have a sound understanding of what your filing for bankruptcy entails, as well as establish that any information provided in support of your petition is accurate. During the meeting, the trustee will ask you and your attorney a series of questions, often taking only 10 minutes or so to complete.
In our experience, even though 341 meetings do not tend to take very long at all, appearing before a U.S. Trustee in federal court is seen as a daunting prospect by most filers. Therefore, this is an occasion where having an experienced lawyer present to support and guide you through it is highly recommended.
3. Important Deadlines Following the 341 Meeting
The date of the 341 Meeting is crucial, as it determines a number of ensuing deadlines. Following the first scheduled meeting, the trustee will have 30 days to object to an exemption you may have requested, whereas creditors will have 60 days to object to the debt discharge. Accordingly, you will also have a 45-day deadline to ascertain what is to happen to your secured debts, such as any car payments (assuming you wish to keep your car) or mortgages.
Even though creditor objections are not common in Chapter 7 cases, they do occasionally happen. In such cases, which often occurs when a filer appears to have used his or her credit card or acquired new debt shortly before filing for bankruptcy, the creditor can file a written objection with the court. Likewise, the trustee may also object to the discharge or delay (“hold over”) of the 341 Meeting if there are documents still outstanding.
You are also required to take a debtor education course after filing for bankruptcy, in addition to the debt counseling course taken before filing. These courses are administered by agencies certified by the U.S. Trustee Program, and it is something that you need to do within 60 days of the meeting of creditors [7]. The focus of this course is to educate consumers on how to make good financial decisions and avoid future bankruptcies. As is the case with the debt counseling course, you must file a certificate of completion with the court—otherwise, your bankruptcy will be closed without a discharge being granted.
4. The Discharge
Once the various deadlines to object to the discharge have passed and provided the court has received all the required documentation, including the certificate evidencing that you have completed the debtor education course, the judge will issue the discharge. This means that the court will decide which of your debts will be discharged, how many, if any, of your assets or belongings will be liquidated, or seized and sold, and hand down a “Chapter 7 discharge and final decree.” Your case will then be closed.
As a general rule, the more assets one has, the more likely it is that the discharge issue will take longer. The court has to assess your property to decide what should be sold and what should be kept, which is something that will be determined on a case-by-case basis. Several different, nationwide data sets say that over 90% of Chapter 7 filings are “no asset” cases, meaning that no property is seized to be liquidated, with no money going to the creditors, except for those with secured property (a car loan, for instance) or ongoing obligations, like an apartment lease.
When filing a bankruptcy petition, you need to work out which of your assets you wish to claim as exempt, protecting them from being seized and sold to pay your creditors. In practice, if there is no money to be had above and beyond the exemption amount, the trustee will simply “abandon” the asset, meaning they won’t attempt to seize and sell it.
At the same time, you may be able to keep any contracts where you are current on your payments, such as a car loan, an apartment lease, or a mortgage that has not fallen behind. This involves a process known as “reaffirmation,” whereby you reaffirm your commitment to continue making timely payments and retain your rights under the lease or mortgage.
Although everything depends on the particular circumstances of each case, it is possible to reach a successful conclusion of a Chapter 7 case as a “no distribution” case. In no distribution cases, none of your assets end up being seized and sold, and nothing is left to “distribute” to creditors. To this end, consulting with an experienced bankruptcy lawyer before filing bankruptcy under Chapter 7 in New York will let you explore your options. You will also receive advice on which New York State or federal exemptions would be best for you to opt for. The legal team at Roemerman law is committed to asset protection, as we firmly believe that this is one of the most valuable things an experienced bankruptcy attorney offers to someone who has decided to file for bankruptcy.
Staying on the Right Path
The above analysis reflects the set procedure and the timeframe that most bankruptcy cases under Chapter 7 normally involve. Three main factors can usually affect the length and potential complications that may emerge in the course of the procedure and which may give rise to delays in its completion:
- Tardiness and/or noncompliance with requests for documentation made by the trustee when you prepare for filing.
- The volume and complexity of your assets and debts, which make the assessment of your exempt property and the corresponding dischargeable debt more difficult and time-consuming to determine.
- Objections raised by your creditors and/or the trustee.
While there is not much you can do to prevent the last two, the first issue lies almost entirely in your hands.
Contact Roemerman Law to Explore Your Options
In contrast to what has been set out as the expected timeline of a Chapter 7 filing, Chapter 13 bankruptcy declarations involve a repayment plan. Consequently, they take a considerably longer time to complete, with such cases usually lasting 3 to 5 years. Even so, it may well be the case that this type of bankruptcy could provide more debt relief than a Chapter 7 filing, depending on the type of debt you have, and so it is always a good idea to explore all available options.
Roemerman Law is here to help you make the most of the bankruptcy tools available to you. We are committed to offering clear and easy-to-understand cost estimates.
Contact Roemerman Law today for a free consultation or click here to learn about qualifying for a NY bankruptcy.
References
[1] https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics
[2] https://www.law.cornell.edu/uscode/text/11
[3] https://www.law.cornell.edu/uscode/text/11/109
[4] https://www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111
[5] https://www.uscourts.gov/forms/bankruptcy-forms
[6] https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics
[7] https://www.justice.gov/ust/credit-counseling-debtor-education-information
