What to Expect

Declaring bankruptcy can be a complicated legal process, but if you have an attorney, it may be relatively quick. But be warned: if you hide assets, or have committed fraud, or are trying to use bankruptcy in a wrongful way, it can be full of unpleasant surprises and frustrating delays. Things happen in the same order in most bankruptcies, and you can at least get a general idea of what's likely to happen. It will also help to know some of the words and phrases that come up in a bankruptcy.

The following chronology gives a general idea of how a bankruptcy filing proceeds. Your action may be different because of differences between local court rules, state laws, and rules of civil procedure. Your attorney can help you understand exactly how your case will fit with this chronology-remember, your attorney works for you, and should clearly explain every step of the legal process.

• A bankruptcy case begins with a Petition. The Petition is a complex document, and includes characterization of debts. Typically, because the filing requirements are so stringent, a lawyer will prepare this document. In most cases, preparing and filing your Petition is the hardest part of the process.
  • The Petition will be under Chapter 7 or Chapter 13 of the Bankruptcy Code. Chapter 7 discharges your debts; Chapter 13 allows you to pay most of them off over time. (There are other Chapters: Chapter 11 deals with business reorganization, and other Chapters deal with farms, railroads and municipalities.)
• When you file bankruptcy, federal law imposes an "automatic stay" which prevents your creditors from taking any action to collect debts against you, including court judgments and tax debts, during the pendency of the bankruptcy. For instance, if you have been served with a lawsuit by one of your creditors to appear in court over a debt, the bankruptcy filing will stop this lawsuit.Depending on where you live, sometime between immediately and a month after you file, the Bankruptcy Court will send out a Notice of Filing and a Notice of Stay to your creditors. This Notice makes it illegal for your creditors to continue trying to collect from you, although they are free to contact your attorney. If you are contacted before the Notices go out, tell the creditor that you have filed and give them the Bankruptcy Court docket number.
• Between four and six weeks after your filing, you will have to attend a "Meeting of Creditors" chaired by the Bankruptcy Trustee assigned to your case. Unless there is a "red flag" that alerts the Trustee that your case is unusual, this will be a brief meeting. Generally, the Trustee will ask you a few form questions and a few questions related to your business, and then will ask if there are any creditors present, with questions. Usually there will not be, although some credit card providers attend many or most Meetings of Creditors.
  • If the Meeting of Creditors is uneventful, the process is probably over for you and your lawyer. If you are seeking a Chapter 7 Petition, you will receive a Notice of Discharge in about six weeks. If you are filing under Chapter 13, you will receive Notice of Confirmation in about the same time, and begin making payments.
• If the creditors have problems with your Petition, they have a certain amount of time to file an adversary proceeding. An adversary proceeding asks the Bankruptcy Court to refuse to discharge a certain debt for some particular reason. The most common reason is fraud, either giving rise to the debt (like if you got the money by stealing from your employer) or fraud in the bankruptcy (like lying about your assets). An adversary proceeding goes on like regular litigation, and it can take as long as regular litigation. Your discharge of these debts will be delayed until the adversary proceeding is resolved.
• If there are no problems with your Chapter 7 Petition, or once you have paid off your creditors under a Chapter 13 plan, or once any adversary proceedings are resolved, you will receive a Notice of Discharge. You may have to fill in forms to get a judgment removed from a judgment roll, but other than bookkeeping matters you have been given a fresh start.

It's hard to say how long all these steps will take in your case. The entire process can take from as little as three months, to as long as five years. Bankruptcy is one of those rare areas where the process is faster in population centers. In Manhattan, you can receive a Chapter 7 discharge in about three months, whereas it takes about twice as long in rural Nevada. Chapter 13 plans are usually on a timeline of three or five years. Adversary proceedings are as uncertain as any other litigation, although most Bankruptcy Courts are fairly vigilant about moving them through the system quickly.