What to Expect Before, During, and After Bankruptcy

Although individual experiences may differ depending on local court regulations, state laws, and the rules of civil procedure, most bankruptcies proceed along similar lines. Here is a chronology of the most common bankruptcy proceedings. The order of events and steps taken is generally consistent in most bankruptcies.

Bankruptcy Petition

This is an intricate document that includes a description and categorization of the outstanding debts. Because the filing requirements are strict, a lawyer usually prepares the document. Preparing and filing the petition is usually the most difficult part of the process.

The petitions are made under Chapter 7, Chapter 11, or Chapter 13 of the Bankruptcy Code. Chapter 7 discharges individual debts; Chapter 13 allows individuals to pay down debt over time; and Chapter 11 deals with business reorganization. (There are also other forms that deal with farms, railroads, and municipalities.)

Automatic Stay

Once the petition is filed, federal law imposes an automatic stay that stops creditors from taking action to collect debts, including tax debts and court judgments. For example, if the debtor has been served with a lawsuit by a creditor and is expected to appear in court, the lawsuit is stopped by the bankruptcy filing. Within a month, the bankruptcy court will send out a Notice of Filing and a Notice of Stay to the creditors, making it illegal for the creditors to continue trying to collect, although they are allowed to contact the debtor's legal representative. Debtors who are contacted before the notices go out should inform their creditors that they have filed, and give them the bankruptcy court docket number.

Creditors' Meeting

Thirty- to 45-days after filing, the debtor is required to attend a meeting presided over by the assigned bankruptcy trustee. This meeting is generally brief, provided that there is nothing to suggest to the trustee that the case is unusual. The trustee will ask the debtor a few standard questions, and then formally ask if there are any creditors present. Generally, most creditors will not be there, although some credit card providers attend these meetings.

If nothing unforeseen happens at the creditors' meeting, much of the bankruptcy process is now over for the debtor. Debtors seeking a Chapter 7 Petition will be sent a discharge notice in approximately six weeks. If they're filing under Chapter 13, they'll receive Notice of Confirmation in about the same time, after which they can begin making payments.

Creditors who take issue with any aspect of the debtor's petition are allowed a reasonable amount of time to file an adversary proceeding; doing so acts as a request for the bankruptcy court to refuse to discharge a particular debt. Creditors must accompany their request with a list of reasons for the request. Fraud is the most common reason, whether it occurred while incurring the debt or during the bankruptcy process. Similar to regular litigation, this may take some time to resolve. The discharge of the debts will be delayed until the adversary proceeding is resolved.

Credit Counseling

One of the most drastic reforms in the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 is the requirement that the debtor consult with a court-approved, nonprofit budget and credit counseling agency within 180 days of the bankruptcy filing.

Notice of Discharge

If there is no trouble with the debtor's Chapter 7 Petition, or once the debtor has paid creditors under a Chapter 13 plan, and assuming that all adversary proceedings have been resolved, the debtor will receive a Notice of Discharge. There may be some forms required to get a judgment removed, but other than bookkeeping matters the debtor has at this point been given a fresh start.

Timeline

The length of the bankruptcy process varies from case to case. It can range from a few months to four or five years. Chapter 13 plans typically call for a three- or five-year timeline. Adversary proceedings are uncertain, though most bankruptcy courts attempt to quickly move them through the system.

Declaring bankruptcy can be a complex process, though hiring an attorney may help speed things along. For help choosing one, read Ten Tips on Choosing a Bankruptcy Lawyer.

The best approach is to be honest: hiding assets or committing fraud can lead to serious delays, or worse. Read Bounce Back from Business Bankruptcy for some helpful pointers to get you back on your feet again.