It is hard enough to file for bankruptcy with all the concern and heartache to follow, and questions often loom about the length of time it takes to file and complete this arduous process. Usually individuals are filing chapter 7 bankruptcy, which is more of a personal bankruptcy. It allows for liquidation of personal assets to satisfy creditors. Personal bankruptcy will take about three to four months if the proceedings play out smoothly. If not, then it could take longer due to some assets needing to be sold off to pay creditors or maybe a lawsuit is pending.
The process begins when you file a petition and meet with the bankruptcy court. The court will set a 341 meeting, which tells creditors that collection activities will stop. Then you have to attend your financial management course. After this course, you will receive your discharge. As stated above, this usually takes three to four months. However, many times it will take longer for the following reasons:
These are a few examples that will take you away from the three to four month period and make it an even longer process. A lot of the length of time it takes can be controlled by the individual experiencing personal bankruptcy. That is why it is so important to follow and complete each necessary step on time.
Individuals have concerns about whether filing personal bankruptcy will affect their spouse. The answer to this question is, it may affect your spouse depending on whether the debts were shared or separate. If you file for bankruptcy leaving your spouse out of it, then their credit score will usually not be affected. But, if the debts are shared between the spouses and personal bankruptcy is filed, then each credit score may be affected.
There are other reasons filing bankruptcy may affect your spouse, such as whether you are filing chapter 7 or chapter 13, whether debts are shared, and state laws will play a major role. An example of state laws playing a major role is when the state is a community property state. This means that any assets acquired during marriage in a community property state is owned jointly. This can have a huge impact on your spouse, because the joint property will be used to satisfy the debts. In this situation, the spouse will lose the same community property.
In addition, filing for bankruptcy does not extinguish any financial obligations your spouse may have to their creditors. Creditors are still free to pursue your spouse in satisfying their debts with your spouse.
Whether bankruptcy will affect your business depends on how the business was formed. The answer to this question is different depending on whether the business is a sole proprietorship, LLC, or a corporation. In a sole proprietorship, the business will most likely be closed at the beginning of the bankruptcy process to determine any assets of the business that can be sold.
The story is different for an LLC. A member of an LLC usually will be liable for their ownership in the LLC, but the LLC as a whole will not be changed. A lot of times agreements are made before the LLC is formed. These agreements make an individual, who is seeking bankruptcy, sale their membership in the LLC and exit before bankruptcy is filed. Essentially, if they do not leave, it would be a breach of contract and the individual can be sued.
Corporations with multiple shareholders will usually not be affected by a shareholder filing for bankruptcy. The creditors may seek to obtain the shares but, with multiple members in the corporation, they will not have enough pull to call a meeting and force dissolution of the corporation.
Overall, whether the business is affected depends not only on what type of business that is formed, but the number of members within the business. Each situation is fact specific and needs to be approached case by case.