How to File Bankruptcy Fast: 5 Rules for an Emergency Petition

A bankruptcy petition can be filed in an afternoon, and the rules that make that possible also make the following six weeks harder than they would otherwise have been. Speed in bankruptcy is borrowed. The debtor who files fast is taking time from a later deadline and spending it now, on the one thing that could not wait.

That one thing is usually a foreclosure sale, a bank levy, or a repossession scheduled for a specific morning. The five rules below describe how an emergency filing works, what it leaves unfinished, and what the law does to a debtor who fails to finish it.

1. The Petition Can Travel Nearly Alone, and the Schedules Follow Within 14 Days

Call it a skeleton filing; the rules permit it. Under Bankruptcy Rule 1007, a voluntary debtor files a list of creditors with the petition, but the schedules of assets and liabilities, the schedule of income and expenses, the list of contracts and leases, and the statement of financial affairs may come "with the petition or within 14 days after it is filed." The court may extend that time on motion and for cause, though in a small business case the Code limits extensions of the schedules to 30 days beyond the start of the case absent extraordinary circumstances.

For a company, the day-one papers are Official Form 201, the creditor mailing list, and in chapter 11 Official Form 204, which names the twenty largest unsecured creditors who are not insiders. A small business debtor adds its latest balance sheet, statement of operations, cash-flow statement, and federal tax return, or a sworn statement that none exists. The judiciary's instructions for non-individual debtors warn that if the later papers do not arrive, "the case may be dismissed."

Two things cannot be skeletal. The first is the lawyer: a company appears in bankruptcy court only through counsel, and no emergency changes that. The second is authority. Since Price v. Gurney in 1945, a corporate petition filed by people who lacked authority under state law has faced dismissal, and the members or directors who approve a filing at seven in the morning need to approve it in a form that will survive a challenge at three in the afternoon.

The fee is the last detail, and for individuals it is not an obstacle. The clerk must accept an individual's voluntary petition with nothing paid if it comes with a signed application to pay in installments on Form 103A. A company pays in full when it files.

A skeleton filing resembles a moving truck that arrives before the furniture has been packed (or, to be more exact, before anyone has counted the furniture): the truck is real, and so is the lease on the new apartment, but the inventory is still owed, and the landlord intends to check it.

2. The Counseling Briefing Can Wait, Briefly, on Three Conditions

An individual ordinarily cannot be a debtor without a credit counseling session taken in the 180 days before filing. Section 109(h)(3) offers a narrow deferral. The debtor must file a certification that describes exigent circumstances meriting a waiver, that states the debtor asked an approved agency for counseling but could not obtain it within the seven days after asking, and that the court finds satisfactory. All three are required. An emergency alone, without a request made to an agency, does not qualify.

The deferral is temporary. It ends when the debtor completes the counseling, and in no case lasts beyond 30 days after the petition, extendable by the court for cause by another 15. Companies take no counseling, so this rule belongs only to owners filing personally.

3. Day 46 Is Written Into the Statute

An individual in a voluntary chapter 7 or 13 case who has not filed the required information within 45 days faces dismissal "effective on the 46th day after the date of the filing of the petition," under section 521(i). The information includes the creditor list, the schedules, the statement of financial affairs, and pay records. A request made inside the 45 days can earn up to 45 more.

A separate rule requires the most recent federal tax return, or a transcript, to reach the trustee at least seven days before the date first set for the meeting of creditors. The skeleton filing has to be finished while those two clocks run. Nobody finishes it for you.

4. The Stay Begins at the Timestamp, Not a Minute Before

Filing a petition operates as a stay of most collection activity, including acts to enforce a lien against property of the estate and the enforcement of a judgment obtained before the case. A foreclosure auction set for ten o'clock is stayed by a petition filed at nine. A petition filed at eleven protects nothing that was sold at ten.

Money frozen in a bank account by a restraining notice, and still in the account on the petition date, is property of the estate. Money the bank has already turned over to a sheriff presents a harder question for counsel. The stay also leaves guarantors outside its reach, so the owner who signed personally is not protected by the company's petition.

5. A Debtor Who Filed Recently Gets Less From Filing Again

The emergency petition is often the second one. For an individual whose earlier case was pending within the preceding year and was dismissed, section 362(c)(3) ends the stay as to debts and property securing them on the 30th day after the new filing, unless the court extends it after a hearing completed within those 30 days and a showing of good faith. With two or more such dismissed cases in the prior year, section 362(c)(4) provides that the stay "shall not go into effect" at all unless the court later imposes one. And section 109(g) bars an individual from filing for 180 days after a case dismissed for willful failure to obey court orders, or voluntarily dismissed after a creditor sought relief from the stay.

These rules apply to individuals; a company's repeat filing is judged under other standards. Speed, in either case, is available once.

When the Sale Date Leaves No Room for Talk

A negotiation creates no automatic stay, and a phone call to a settlement company stops no auction and no lawsuit. That is why an owner facing a sale scheduled for the end of the week belongs with bankruptcy counsel today. Delancey Street, a negotiator of business debt and not a law firm, handles the other kind of problem: merchant cash advance balances and similar obligations where the calendar still allows a conversation. It starts with a review of the contracts and bank activity that costs nothing and is kept confidential, and it relies on independently licensed counsel when a legal question arises.

The quickest filing is the one prepared before it was needed. The notice that set the sale date was, after all, mailed to someone.