Once you decide to file for bankruptcy, you may want it finished as soon as possible so you can begin rebuilding your credit. But the process of filing bankruptcy takes time. How long a Michigan bankruptcy takes depends on whether you are filing under Chapter 7 or a Chapter 13, and whether any special circumstances cause delays.
The process of filing bankruptcy starts well before your case is opened in court. When you consider how long a bankruptcy takes from beginning to end, you need to consider the time spent gathering all your information and putting your paperwork together.
The process starts with an initial consultation with an experienced Michigan bankruptcy attorney. They will review your situation, including what you owe and what you earn, to help you determine whether to file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy payment plan. Once that choice is made, you will be set on one of two timelines that could take as little as a few months, or as much as several years.
Then, you and your bankruptcy attorney will work together to gather the documentation needed to file the bankruptcy petition. You can help make the most of this time by gathering the documents needed to file even before your consultation, and by promptly responding to your lawyers’ questions. It will also be up to you to complete both the pre-filing credit counseling and the post-filing debtor education course, to make sure your bankruptcy is discharged on time.
A Chapter 7 bankruptcy officially begins once your attorney files the bankruptcy petition in court. If everything is in order, the Chapter 7 bankruptcy process can take as little as 3 months. However, the automatic stay on collections starts immediately, giving people filing for bankruptcy relief from creditors while their cases are pending.
The First Meeting of creditors is generally scheduled approximately 30 days after the petition is filed. At this meeting, the bankruptcy trustee will review the schedules filed with your petition and claimed exemptions, and to collect any unexempt property. Creditors may also attend to ask questions about the case and express preferences.
The court can issue a discharge, ending a Chapter 7 bankruptcy process approximately 60 days after that First Meeting. However, that 60 day waiting period is designed to give creditors an opportunity to file objections to their claims being discharged. If they do, the bankruptcy will be converted to an adversarial proceeding regarding that specific creditor, to resolve the claim. This will delay the final closing of the case. The court will still issue a discharge for all remaining creditors, though. This permanently bars them from coming after the debtor for collections.
The Trustee may also file an objection or hold the case open to collect assets, such as a non-exempt tax refund or a personal injury payment. However, the Trustee keeping the case open should have little effect on the debtor, since the assets should be paid directly into the Trustee’s care and distributed to the creditors. For the debtor’s purposes, most Chapter 7 bankruptcies resolve in about 90 days.
If you fail the Chapter 7 means test, or choose to file a Chapter 13 to protect non-exempt assets, you should expect your bankruptcy to take far longer. The Chapter 13 bankruptcy process can take three to five years, as debtors make dedicated payments to their bankruptcy trustee according to the terms of their payment plan. You will generally know whether you are on the three-year track or the five-year track when your Chapter 13 bankruptcy is filed. However, if the loss of a job, a medical emergency, or COVID-19 related financial troubles cause you to modify your plan, it could extend the process of filing bankruptcy beyond your initial expectations.
Even if you are in a hurry to discharge your debts, there are some good reasons to delay starting the process of filing bankruptcy. Michigan bankruptcy law allows the trustee to “clawback” preferential or fraudulent payments made to unsecured creditors in the days leading up to filing (such as paying off your aunt’s personal loan). This clawback period is 90 days for preferential payments or 2 years for fraudulent payments (designed to hide assets, or done for less than fair market value). You should talk to your bankruptcy attorney about any substantial payments you have made on your debts in the last two years to determine whether you need to wait until the clawback period ends before filing.
One of the most common reasons a person’s bankruptcy gets delayed is because they filed it without the help of an experienced bankruptcy attorney. Working with a lawyer from the beginning can avoid objections and get your bankruptcy resolved faster, with fewer visits to court. At John A. Steinberger & Associates, P.C., we are a full-service bankruptcy law firm in Southeast MI. We help debtors and families in Southfield, throughout Metro Detroit, and in the surrounding communities see their Chapter 7 and Chapter 13 bankruptcies through from start to finish. If you are considering bankruptcy, call us toll-free at (866) 690-2140 or contact us online to schedule a free initial consultation.