Chapter 7 Timeline

How long does filing a Bankruptcy Case take?

Chapter 7 bankruptcy requires an individual to file a petition for bankruptcy. It also requires that individuals undergo a Means Test under the Chapter 7 Eligibility rules. In order to proceed with the process of filing for bankruptcy, the individual must meet eligibility under the Means test.  The means test is an income-based test that determines if an individual falls within the income requirements outlined in the bankruptcy code to file Chapter 7.  Most of the time, Chapter 7 Bankruptcy Timeline will last approximately four months from date of filling to discharge.  During that four months, creditors, interested parties, and the Trustee have a chance to file various objections to the bankruptcy.

Issues to Consider Before Filing Chapter 7 Bankruptcy

There are several issues a bankruptcy attorney needs to consider before filing a Chapter 7 for an individual.

Has the individual filed a prior bankruptcy case?

If an individual has filed a prior bankruptcy case, there has to be a certain number of years between the cases in order for the individual to get a discharge.

If an individual has filed a Chapter 7 or 11 Bankruptcy prior to filing another Chapter 7 Bankruptcy, there has to be 8 years between the cases (filing date to filing date) in order for the individual to get a discharge.

If an individual has filed a Chapter 12 or 13 Bankruptcy prior to filing a Chapter 7 Bankruptcy, there has to be 6 years between the cases (filing date to filing date) in order for the individual to get a discharge, unless that individual paid 100% to the allowed unsecured debt or if they paid 70% and the Court determines that individual filed the case in good faith and it was that individual’s best effort.

In addition, if an individual has had a bankruptcy pending in the last year, the “automatic stay” is lifted after 30 days unless the Court orders otherwise.  If more than one bankruptcy case was pending in the year prior to filing a new bankruptcy case, there is no “automatic stay” when the new case is filed until the Court orders otherwise.

What types of debt is the individual trying to discharge?

When a bankruptcy attorney is dealing with certain tax debts, such as IRS, the attorney needs to be careful to consider the tolling of time and what type of tax debt is owed when determining whether or not that debt is dischargeable.

Certain debts are nondischargeable.  The most common debts are certain tax debts, child support, spousal support, debt incurred during the course of a divorce or separation pursuant to an order by the Court, student loans, death or personal injury caused from the debtor being intoxicated by alcohol, a drug, or other substance.

Any creditor or interested party, the Chapter 7 Trustee, or United States Trustee can file an Adversary objecting to discharge if they believe the individual does not meet the requirements set out in the Bankruptcy Code.  There are many reasons an adversary proceeding might be filed but the most common are obtaining credit under false pretenses, false representation or actual fraud; the debtor incurred consumer debt aggregating more than $550 for luxury goods or services within 90 days of filing bankruptcy; or received cash advances for more than $825 in the 70 days prior to filing bankruptcy.  It is not common for an Adversary proceeding to be filed, but an attorney needs to know the risks and discuss it with the client.

Can my Chapter 7 Bankruptcy be dismissed?

Yes.  There are many reasons listed under in the Bankruptcy Code that the Trustee or interested party can use to file a Motion to Dismiss an individual’s case.

The most common reasons are:  unreasonable delay that is prejudicial to creditors; nonpayment of fees; failure to timely file the appropriate documentation with the Court (usually within 15 days of filing); the debtor meets the presumption under the means test; whether the filing of the case is an abuse of the system; and if an individual is convicted of certain violent crimes or drug trafficking.

Other reasons for dismissal are the individual did not receive credit counseling before the case was filed or a prior case was dismissed with prejudice for a certain period of time and this case was filed during that time period.

What other issues should be considered before filing Chapter 7 Bankruptcy?

An individual has be domiciled in the district where the case is being filed for the better part of 180 days – in other words, 91 days.

The attorney needs to consider where the individual has lived for the past two years when determining what exemptions are allowed.  Remember, exemptions determine what property the individual gets to keep. There are two sets of exemptions provided for in the Bankruptcy Code:  State and Federal.  Some states allow you to choose either, such as Texas, but some states only allow an individual to use that state’s exemptions. Determining which exemptions to use if the individual has moved around can be complicated.  An individual could lose his or her homestead exemption if they have moved recently, for example.

If the individual has paid a debt to an “insider” such as a relative or business partner within a year of filing bankruptcy, the Trustee can require the person to return the funds to be distributed to all creditors.

Filing a Chapter 7 Bankruptcy Case

Once all timelines and requirements have been considered, it is time for the case to be filed. Once your case has been filed, the Bankruptcy Clerk will send out a Notice of Creditor’s Meeting to all of your creditors, and a Chapter 7 Trustee will be assigned to your case.  The Trustee’s job is to review your case and be sure you have met all the requirements for Chapter 7 Bankruptcy, and the Trustee will reside over your creditor’s meeting.  If your attorney has not already filed all your bankruptcy schedules at the time of filing of the petition, he has 15 days to file the Schedules, Means Test, Statement of Financial Affairs, Attorney Disclosure, Proof of Income, and proof of Social Security Number.

A Debtor is required to take a Debtor Education Class before getting his or her discharge.  If the certificate indicating the class has been completed is not filed with the Court before the discharge date, the Debtor will not receive his or her discharge and may have to pay to reopen the case in order to receive that discharge.  As stated before, if the case goes smoothly with no objections nor adversaries, then the Debtor should receive his or her discharge.