With it comes to managing your personal finances, bankruptcy is pretty much the worst case scenario. Filing for bankruptcy is an unfortunate situation to be in. This is in addition to being a stressful and complicated process. Based on government data, over the past 10 years on average 920,000 people have filed for bankruptcy each year.

chart showing bankruptcy filings

This figure has been declining since the 2008 financial crisis but still represents a large number of people. Hopefully none of our readers ever have to go through personal bankruptcy, but you never know. Below we provide some helpful information on the process of filing for personal bankruptcy. We also specifically answer the question of how long does it take to file for bankruptcy? This is a question that last year alone over 500,000 people in the United States had to answer for themselves! Read on to learn about the chapter 7 bankruptcy process, how long it takes, what alternatives there are, and more!

What Is The Process For Filing Personal Bankruptcy In The United States?

The bankruptcy process consists of a number of elements and as noted earlier is time consuming. It is important to find a bankruptcy attorney, get counsel about your specific situation, then file the case in court. After this you need to get your assets liquidated, take a debtor education course, and finally get your debts discharged. That’s a lot of steps. To help we’ll go through one example. Specifically we’ll take you through the process of filing chapter 7 bankruptcy.

Finding A Bankruptcy Lawyer

The first thing to do when filing chapter 7 bankruptcy is finding an excellent lawyer. As you would expect, you must find a lawyer specializing in bankruptcy law. There are multiple ways to find a great bankruptcy attorney:

  • Reading through a directory created by your state bar association is a good place to start.
  • Take advantage of your personal network. Friends, colleagues or family members might have gone through the bankruptcy process in the past. A recommendation from someone who has experienced the bankruptcy process can be very valuable. And remember, it doesn’t hurt to get a recommendation, you can always choose not to hire the lawyer afterwards.
  • If your employer already has access to legal counsel that is available to you, this is something you should definitely consider.
  • You can also consult attorney listings in an online directory to find one.

Most attorney fees will be between $1,500 to $3,000 for filing chapter 7 bankruptcy. Although expensive, they are a crucial part of the process. It is a good idea to not be solely focused on finding the cheapest lawyer. You want a lawyer that is experienced and with a strong reputation for handling these types of cases.

Getting A Credit Counseling Service To Advise You On Your Bankruptcy

Once you have an attorney, the next step is to take part in a credit counseling session. These sessions are mandatory, and you must do two of them. The second session will occur after your bankruptcy trustee. You must do these sessions with a U.S. Justice Department approved agency. The first session must be done before you file for bankruptcy with a bankruptcy court. This initial session will include your lawyer giving you legal advice by telling you the advantages and disadvantages of chapter 7 bankruptcy and possible alternatives. They need to make sure that bankruptcy is absolutely necessary before they proceed. They will then go over the complete timeline for you, as well as determine your total budget.

Filing For Bankruptcy With A Bankruptcy Court

Next, you need to file your bankruptcy with a bankruptcy court. As part of this process, a bankruptcy judge will insist that you file the following with the court:

  • A full schedule of all of your current assets and liabilities.
  • Your income and current ongoing expenditures.
  • A complete statement of all your financial obligations.
  • A full schedule of any ongoing contracts and leases.

The court will assign you a bankruptcy trustee to liquidate your assets. To do this you must provide them with your tax return from the most recent tax year. The bankruptcy court charges a $245 fee for filing the case, a $75 administrative fee, and a trustee charge of $15. If you are an individual debtor, the court will give you the option to pay these in installments. After you file bankruptcy, it will appear on your credit report, which means that creditors must cease trying to collect your debt including credit card debt.

Having A Bankruptcy Trustee Liquidate Your Assets

Once you’ve filed with a bankruptcy court, you have to get your assets liquidated by an assigned trustee. If none of your assets are deemed valuable, the trustee will not sell your property. However, If you have many valuable assets and your equity is more than what is protected by your state, the trustee will sell your property to pay your creditors, expenses from the sale, taxes, and other debts. If there are any secured debts that you want to keep (house, car, for example), you will have to tell your lawyer before you file.

You Have To Complete A Debtor Education Course Before Debt Discharge

As well as the credit counseling session before you file for bankruptcy, you’ll need to do a second session before bankruptcy discharge. The second session is a  credit counseling course on debtor education. The course exists to make sure you are financially educated and teaches you how to stay on top of your finances after you’ve filed for bankruptcy. You must take this course before bankruptcy discharge, or the court will fine you.

Getting Your Debt Discharged

Once you complete these steps, all of your debts can get discharged. The bankruptcy discharge is the process that you are building towards when you file for bankruptcy in the first place. Bankruptcy discharge takes away any debts you had and takes away any obligation you had to pay to your creditors. Once the discharge process is over, you can finally start to build your credit score back up.

How Long Does It Take To File For Bankruptcy?

On average, a chapter 7 bankruptcy case will take between four and six months from start to finish.

chart showing how long it takes for bankruptcy cases

In the chart above you can see the average time from filing to disposition for Chapter 7 cases over the past 10 years. From the data, the exact answer to how long does it take to file for bankruptcy would be 3.8 months. But again this is just for Chapter 7 cases.

We detailed above the various steps that need to be taken. You have to give time to finding a lawyer and going through the credit counseling sessions. In addition, it also will take time to file the bankruptcy in court and to get your assets assessed and then liquidated. Finally, you will need to complete the debtor education course before you get your various debts discharged. Generally, the court grants the order that removes all of your eligible debt approximately three months after you file the claim. How long does it take to file for bankruptcy really depends on how quickly you can hire a good lawyer and get your paperwork in order. It also depends on how quickly the court moves which is out of your control.

Are There Alternatives To Chapter 7 Bankruptcy?

Chapter 7 is what most debtors will turn to when they want to file for bankruptcy. However, there are other options for specific debtors, such as chapter 13 and chapter 11.

Chapter 13 Bankruptcy Is Better For Various Debtors

Filing for chapter 13 bankruptcy can be far more valuable for a variety of people. This includes debtors that fear they will lose property that is valuable to them if they file for chapter 7. It also includes debtors who earn too much money for the chapter 7 constraints.

Debtors Who Will Lose A Piece Of Property Of Value If They File For Chapter 7 Bankruptcy

It is crucial to know what kind of property you can keep under a chapter 7 bankruptcy if you decide to file one. If your assets are a higher price than the chapter 7 parameters, the trustee will sell your property to pay your creditors. In most U.S. states, trustees will liquidate non-exempt properties, including bank accounts, stocks, certain vehicles such as boats and airplanes and other valuable property. It can also affect your home if your home is ineligible under chapter 7. If you fear that your assigned trustee will liquidate your home or some of your property under a chapter 7 bankruptcy, you should consider chapter 13, which comes with a  creditor payment plan approved in court.

Debtors Who Earn Too Much Money

If you earn too much money for a chapter 7 claim, there is a good chance the court will dismiss your claim entirely. If your total monthly income over the last five years (subtracting any eligible allowed expenses) is over $10,000, the court will assume that you abused your chapter 7 bankruptcy claim. To combat this, you have to prove that you need the extra funds for specific eligible circumstances. If you can’t do this, the court will dismiss your claim, but they can convert your claim to a chapter 13 bankruptcy claim if you give your permission.

Chapter 11 Is Better For Debtors Currently Engaged In A Business

If you are a debtor who has a business and wants the company to remain fully operational, you should consider filing for chapter 11 bankruptcy. When you file for chapter 11 bankruptcy, you have the opportunity to get your current debt adjusted. In some instances, debt adjustments can reduce the total amount of debt you have, but the more likely outcome is that you will get a more extended period to repay them.

How Long Does It Take to File For Bankruptcy If It’s a Chapter 11 or Chapter 13 Case?

While there are advantages to pursuing chapter 11 or chapter 13 cases instead of chapter 7, there’s a major disadvantage. According to historical data from the U.S. bankruptcy courts, it takes substantially longer for these cases to get processed.

chart showing how long chapter 11 cases take

As the above chart shows it takes on average 18.6 months for a Chapter 11 case to get processed. This is almost five times the length of time it takes for a Chapter 7 case. But it pales in comparison to a Chapter 13 case.

chart showing time it takes for chapter 13 case to be processed

For Chapter 13 cases it takes on average 35 months from filing to disposition. This is almost nine times the processing time for a Chapter 7 case.

Final Thoughts on How Long It Takes To File For Bankruptcy

As you can see the length of time it takes to process your bankruptcy case can vary. In particular if you opt for a Chapter 11 of 13 you can expect to the process to drag on considerably. This is why having a great bankruptcy lawyer is critical as they guide you appropriately.