The Bankruptcy Process Step-by-Step
Bankruptcy Process in Graphic Form
Click chart for enlarged view
Step 1 The free consultation.
Making the bankruptcy consultation appointment.
The first thing to do is meet with a bankruptcy lawyer. Make the phone call and schedule your free consultation. The appointment is for 90 minutes. We'll send to you (by email, download, fax, or letter) a short form to fill in with a map to our office. When you arrive, you'll watch a bankruptcy video we made ourselves that clients praise as being extremely helpful in understanding the basics of bankruptcy law. Then you will meet personally to consult with either attorney Eric Ruff or attorney Lisa Cohen. The consultation is a two-way exchange of information. You explain your situation to us. We explain how the bankruptcy law would work in your case. If bankruptcy makes sense for your situation, we will explain which bankruptcy is best for you and why it is better than other choices. At the end of the consultation, you should have a firm understanding of what bankruptcy law can do for you and how the process would work.
Getting a fee quote for filing bankruptcy.
Now that we understand your situation, we will be able to quote you a fee for the work that needs to be done. We will also explain expenses such as the Court's filing fee and financial counseling fees. There is no obligation at that point. The consultation is just a chance to talk and learn.[Return to Top of Page]
Step 2. You decide to move forward with your case.
Sign a contract with us.
You may decide at the conclusion of the consultation, or at some later date, that you wish to retain us and get started on your case. First we will sign a contract with you for the work we are going to do. You can ask questions about the contract before you sign. The law requires all new clients to read and sign a series of informative documents.
Bankruptcy fee retainer.
Once that is done you pay an initial retainer, which is a minimum of $200, towards the total we have agreed upon. Some clients are able to pay the full amount at once; others prefer to pay an initial retainer and then make payments over time and we will work with you on that. For those clients who elect to make payments towards fees and costs, you must understand that your case cannot actually be filed with the Court until the full amount is paid. Why? Because if you still owe us money when the case is filed, that turns our firm into one of your creditors! That creates a conflict of interest; plus we don't really want to file bankruptcy against our own firm.[Return to Top of Page]
Step 3. Gathering information about your case.
Once the contract is signed, we are ready to move full steam ahead to prepare your bankruptcy papers for the court. Even if you can't pay in full right away, we still want to work on your case and get it ready for filing. The papers we will file for you will be very detailed and that means we need a good deal of information from you including creditor names and addresses, account numbers, income records, bank records, tax returns, property lists, deeds, financial history and so forth.
We make it easy for you to provide us information required by the Court.
At this point some bankruptcy lawyers simply hand to their clients a copy of the official bankruptcy forms and tell their clients to fill them in. Our opinion is that the official forms are far too complicated for non-lawyers to fill out. (Example: do you understand what is meant by a "non-contingent claim" you are supposed to list?). The official forms are also not well organized. For example, information about your income is scattered over three different areas of the official forms. We took months to design our own easy-to-understand forms that are well organized and divided into short sections in a three-ring binder separated by printed, laminated tabs we had custom printed for our clients. You will find we have a unique and organized, easy-to-follow way for you to provide information to us. Rather than make you list all your household goods by hand, we have an organized checklist that will save you time. We have guided thousands of people through this process and we can get you through it too.
Getting a free copy of your credit report.
We will show you how you can get a free copy of your credit report if you'd like, which might remind you of some old debt you had completely forgotten about and which you will want to include in your case. We caution you not to depend on credit reports. Credit reports can be incorrect, they can have information that is out of date, and not everyone you owe even reports to the credit bureau. Use a credit report as a tool, but not as a crutch.
Deliver your information back to our office and we go to work.
In a few days, you will bring us the needed information and we can begin on the first draft of legal papers for the Bankruptcy Court. To have your first draft ready usually takes us less than 1 week from the time you deliver the requested information to us. We can go faster if you have an emergency.[Return to Top of Page]
Step 4. Pre-Bankruptcy Counseling requirement, part 1 or 2 counseling sessions.
Bankruptcy law requires you to complete two educational counseling sessions, one before you file bankruptcy and one after you file. Our attorneys will provide you with a choice of approved counselors. Both counseling sessions can be done over the phone or over the Internet. You can also take the course in person with a local agency if you wish. While we are busy working on your first draft you will take the first credit counseling session. It should take an hour or less. The counselor will take care of getting your Certificate of Completion to us and will charge our account for the cost of the course. All you have to do is call and talk with the counselor.[Return to Top of Page]
Step 5. Sign your papers and file your case.
Updating and signing your bankruptcy papers.
When we have completed the first draft and you have completed your payments, we will schedule with you a conference appointment to review and sign your papers. This is an important meeting with your attorney. We want your papers to be perfect and we take pride in our work. You will see that a great deal of work goes into your Petition, Schedules, Statement of Financial Affairs, and other documents we prepare for you. They will usually exceed 50 pages in length. At this meeting we will update information, add missing information, make additions and corrections, and review everything.
We file your bankruptcy case
When your papers are as perfect as they can be, we will let you sign everything. Then, while you wait, we will file the papers with the Bankruptcy Court. These days, everything is electronic. You will see us file your case electronically with the Bankruptcy Court. The Court will respond by indicating your papers have been filed and the Court will provide us with your case number for you.[Return to Top of Page]
That is the exact moment you have "filed" your case. Everything up to that point with our office is just talk and preparation. But getting the case number is a big deal. If there are any lawsuits against you, we can use that case number to file more legal papers in those lawsuits. These papers, going by the odd name of "Suggestion of Bankruptcy" advises those courts, judges, and opposing lawyers that we have filed bankruptcy for you that we have a case number. With rare exceptions, those cases must stop right where they are. Those cases will stay frozen unless and until the bankruptcy law gives them permission to resume. If there is a wage garnishment in place against your wages, we can use your bankruptcy case number to stop the garnishment. You can use your case number when creditors call and order them to cease any further phone calls. You will be shocked how effective it is. Up to that moment your creditors have been pushing you around, harassing you with phone calls. Now you push back. Hard.[Return to Top of Page]
Step 6. Debtor's Education Counseling, part 2 of 2 counseling sesssions.
There is a required second financial counseling session but you are not permitted to take that course until you have actually filed your bankruptcy case, but guess what? You now have filed your case; you
have a case number and so are eligible to take it. We encourage you to take the second course (again over the phone or internet) immediately after filing your case, maybe the same day or in the next few days. Why? Getting it out of the way means it's just one less thing for us to think about. The second course, while easy to take, is a big deal. If you fail to file the second Certificate with the Court before your case is closed – you don't get any forgiveness of debt! And that's the whole reason you filed your case. So, take our advice, take the second course right away, and get your Certificate for us. We will file it right away, and then it's done.[Return to Top of Page]
Step 7. The meeting of creditors.
Creditors are invited to the Meeting of Creditors but usually do not attend.
The phrase Meeting of Creditors implies that your creditors will all be in attendance facing you and questioning you. And in fact, that was the original intent of the law, to give your creditors a chance to question you about your finances and property and perhaps challenge the accuracy of your bankruptcy papers. In the old days, creditors often did show up at creditors' meetings and took an active role, asking questions and so forth. Gradually, the creditors began to realize that the cost of paying a lawyer or even one of their own employees to attend the meeting of creditors was not cost effective. We began to see fewer and fewer creditors. The last creditor to regularly attend these meetings was probably Sears and even they have quit coming. These days it is unusual, though not quite rare, for a creditor to appear at the meeting of creditors and so the odds are none will appear in your case. Still, each of your creditors will receive a written notice from the Bankruptcy Court of the meeting and an invitation to attend. Even if a creditor does attend in your case, it's usually "no big deal" because the creditor is likely there either (1) to assure themselves that the collateral for their loan (perhaps a vehicle) is in still good condition, insured, and in your possession or (2) the creditor is a private creditor (not a bank or credit card company) and is attending through a misunderstanding of the bankruptcy process. Some private creditors mistakenly believe from the Court's Notice that they must attend the meeting or risk losing some rights, which is not true. So these people will occasionally show up, don't really have any questions, look confused, and eventually realize it was a waste of their time. On rare occasions a creditor will show up with knowledge, for example, of some valuable assets that the debtor failed to disclose in the bankruptcy papers. The creditor can ask about this and so inform the trustee who is sitting there. That is a problem best avoided by complete honesty in the papers originally filed with the court. But that is far from a normal event. The most common scenario is that no creditor makes an appearance at your meeting of creditors, so it's just you, your attorney, and the Trustee.
The Trustee questions the debtor for about five minutes.
Then what does happen at the meeting? It is usually a very short meeting in which the trustee asks the debtor some questions. It is important that you understand these meetings take place a the rate of 5 to 6 meetings
every half hour. That means your creditors' meeting will likely lasts only 5 minutes or so. There is no time deadline for the meeting, but the trustees do like to stay on schedule as much as possible, and the fast pace of the meetings reflects that. Your trustee is in charge of the meeting; incidentally the bankruptcy judge is not permitted to be in the room. All the clients and their lawyers are all seated in one large room. There is a table where the Trustee sits with a stack of paper files. There are microphones on the table and everything said at the table is recorded. Like almost all hearings in the U.S., the hearing is open to the public; it is not in secret. On the other hand, almost no one is paying attention to what is being said until his or her own case is called. The trustee calls one case after another, in the order that the cases were filed with the court. When a case is called, the client and the client's lawyer take their places at a table where the trustee will ask questions.
Debtors must answer questions under oath at the Meeting of Creditors.
First the client takes an oath to tell the truth and is then seated next to his or her lawyer. The client then produces proof of identification, usually a driver's license and Social Security card or W-2 from a tax return. The Trustee begins a fairly short list of "standard" questions. They tend to ask the same questions over and over again. So if the client has been paying attention to the cases that were called earlier, the questions will come as no surprise.
The Bankruptcy Trustee asks the debtor questions about the papers filed and the debtor's financial history.
The first questions deal with whether the client filed honest papers, listing all their debts and revealing all that they own. Did the client review the papers and is that their signature? Did the client assign fair values to the listed items? Were all the creditors listed showing all the clients debts? Then are a variety of other questions that vary from trustee to trustee, but there are other questions like "do you have the right to sue anyone?" and "are you expecting to inherit anything anytime soon?" They used to ask if you held any winning lottery tickets, but we haven't heard than one in a while. After the "standard questions" are done, the trustee will ask any questions related to this particular client's case, anything of interest that the trustee noted in reviewing the clients' papers that the trustee would like more information about.
Creditors in attendance at the Meeting of Creditors are invited to ask questions.
After a few more questions, the trustee will inquire of the room whether any creditors are present with an interest in this case. After a short silent pause, the trustee usually announces, "No creditors being interested, this meeting is concluded." More than once, a client has given me a "look" at this point that says "That's it? It's over? I lost sleep last night worrying about this? That wasn't hard at all!" Of course, if any creditors have appeared, they may ask questions. However, there is a practical time limit on how long creditors can question the debtors because there is usually a very long line of other cases waiting to be heard. If a creditor drones on and one with questions, at some point the trustee will halt the questioning and advise the creditor to seek further examination of the debtor at what is called a "2004 Examination" which is bankruptcy-speak for a deposition of the debtor. Again, the normal situation is that no creditor even appears.
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Step 8. The "buy-back."
Exempt property in a Chapter 7.
In a Chapter 7, there is a limit on how much property, i.e., things of value that you can keep. This is called your "exempt" property. In theory, all property you own above and beyond your exempt property must be surrendered to your Trustee who will sell it and divided the proceeds among your creditors in a one-time distribution. The Trustee can ask the court for a percentage of the money distributed to the creditors. In practice, many times the client really doesn't want to surrender the excess property and so will enter into a deal with the Trustee.
The bankruptcy trustees encourage buy-back agreements.
Remember, the Trustee's angle is to end up with a pile of cash to distribute to the creditors (keeping some for the Trustee with the approval of the Court). The Trustee will sell the excess property to anyone for a fair price including, guess who, you! So the client (debtor) makes an offer to "buy-back" their excess property from the Trustee. Trustees like this, because it saves them the trouble of sending out someone with a truck to get your stuff and find buyers. Plus, the debtor is usually willing to buy all the stuff back, whereas other buyers might only be interested in this or that – a headache of paperwork to keep track of. So, the debtor makes an offer to buy the things back. Most trustees will give the debtor several months to make payments on the buy-back. If a deal can be struck, then the debtor's excess property never leaves their home. The debtor makes the payments until fully paid. The Trustee will give notice to all creditors of the proposed sale, and will invite higher bids, but higher bids are almost never offered, so the sale goes through to the debtor. Also realize that most debtors don't have any excess property, so a buy-back takes place less than 50% of the time. Some trustees will discuss the buy back with the debtor and sign documents related to it right at the conclusion of the meeting of creditors. Other trustees like to handle it by mail with the debtor's attorney at a later date.
Why the buy-back is a good solution when there is non-exempt property.
The buy-back is a good deal for everyone. It's good for the trustee, because it saves a lot of administrative effort on their part that would be necessary if the trustee had to arrange for the pickup and sale of the items. Plus, debtors tend to buy back all of their property, not just this item or that. After all, most of us like all the stuff we have accumulated. But it would be hard to find another buyer interested in buying all the debtors items as a single group. Also, debtors know the condition of all their property. Most of us would be leery of buying a 3-year-old flat screen TV. Who knows if it has problems? But debtors buy with confidence, being fully familiar with all their own property.[Return to Top of Page]
Step 9(a). Chapter 7 hibernation and discharge.
Deadline to object to debtor's claim of exemptions.
What happens next depends on whether the client has filed a Chapter 7 or Chapter 13 case. In Chapter 7, the case goes into hibernation for 60 days after the creditors meeting. During this time creditors have the right to complain (during the first 30 days) that the debtor is trying to "exempt" more property than the law allows (trustees can make this objection too).
Deadline to object to debtor's discharge.
For 60 days after the meeting of creditors have a right to complain or (during the full 60 days) object to the debtor receiving a discharge, either of all debts or of the particular debt held by that creditor. These are extremely rare, but some examples of the grounds for such an objection are fraud by the debtor towards the creditor or dishonest bankruptcy papers. The Court must wait until the 60 days is expired to see if any objections will be filed.
Chapter 7 discharge is entered.
If no objections to the discharge is are timely filed, a Discharge is granted by the Court. The discharge is the Holy Grail for the debtor and is what the client/debtor was aiming at the whole time in bankruptcy. The discharge IS the forgiveness of debt. It "discharges" the debtor of the obligation to pay the kinds of debts that can be discharged in a Chapter 7. Many clients expect the discharge to list all the debts that were forgiven in the Chapter 7 case. That makes perfect sense and that is not how it is done. Rather, the discharge is a very short document that, frustratingly, only says it discharges the debtor of "dischargeable debts." So it's more of a formula of forgiveness than a satisfying list of debts that have been discharged. To figure out what debts were discharged, you would have to compare (1) the papers filed by the debtor along with (2) the addresses used by the court to mail out the notice of bankruptcy to the creditors, plus (3) the Court's docket to see that no objections were successfully filed against the debtor, and finally (4) the Bankruptcy Code itself (which excludes certain classes of debts as not being dischargeable, like student loans, alimony, child support, recent taxes, and some other debts). So the discharge is not explicit about what is being forgiven, so it is not satisfying in some respects, but that's the way it is. The bottom line is that common debts like credit cards, signature loans, repo debts, broken leases, auto negligence not involving drugs or alcohol, and many other debts are permanently forgiven.[Return to Top of Page]
Step 9(b). Chapter 13 plan payments and discharge.
If Chapter 7 is the fast food of bankruptcy, then Chapter 13 is the crock-pot slow-cooked meal. Clients in a Chapter 7 want to be through quickly, but clients in a Chapter 13 often want plenty of time to get caught up on mortgage arrearages. In any event, the creditors meeting in a Chapter 13 is just the beginning. 30 days after first filing a Chapter 13, the client began laying down a record of regular, timely payments to the Chapter 13 Trustee according to the Chapter 13 Plan proposed by the debtor's attorney. A solid record of making payments on time will convince the trustee and the bankruptcy judge that the client has the ability and willingness to make the payments stated in the clients Chapter 13 plan. After several months of payments, the Court will hold a hearing to decided whether to approve the plan. If no creditor objections are sustained by the court, and with the recommendation of the Chapter 13 trustee, the Court approves the plan. Clients who fail to make plan payments on time will find their case getting in trouble and possibly dismissed so making plan payments on time is the key. The Court and the Trustee don't have much patience for debtors who propose repayment plans they do not honor. The plans are usually 5 years (60 months) long. At the successful conclusion of the 5 years, the Court will discharge the debtor of any remaining debts that are of the kind Chapter 7 debtors receive, state above. And just like in a Chapter 7, the balance of student loans, alimony and child support will still be owed. Importantly, by this end of the plan payments, the debtor's mortgage will be completely current again (if there was an arrearage to begin with).[Return to Top of Page]