What Happens When You File for Bankruptcy: 7 Events in the First 60 Days

On the day a petition is filed, very little visible happens and a great deal changes. The phone may keep ringing for a while; the legal ground under the calls has already moved, and the next two months follow a sequence set out in the Code and the Federal Rules of Bankruptcy Procedure rather than in any creditor's collection script.

This page follows that sequence for an owner who files as an individual, usually because personal guaranties of company debt have become the larger problem. The sixty days in the title are, strictly, a convenience: several of the deadlines that matter most are counted from the date first set for the meeting of creditors, not from the filing, and they land later than an owner expects.

1. The Stay Takes Hold the Moment the Petition Is Filed

A petition, in the words of section 362(a) of the Bankruptcy Code, "operates as a stay, applicable to all entities," of lawsuits against the debtor on prepetition claims, of enforcement of prepetition judgments against the debtor or estate property, and of "any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case." A funder suing the owner on a guaranty must stop. So must a judgment creditor pursuing the owner's personal accounts.

The protection belongs to the debtor. The owner's filing does not shield the LLC, whose accounts are not the owner's property and whose contracts the stay does not reach; courts in the Second Circuit have long held that section 362(a) stays are limited to debtors. The stay also has exceptions listed in section 362(b), and an owner with a recent dismissed case may find it shorter or absent, a history counsel needs to hear on the first day.

2. The Schedules Are Due Within Fourteen Days

Rule 1007(c) requires a debtor in a voluntary case to file the schedules of assets and liabilities, income and expenditures, executory contracts and leases, and the statement of financial affairs with the petition or within 14 days after it, unless the court extends the time. Section 521(a)(1) adds a list of creditors and copies of payment advices received within 60 days before filing.

For an owner, this is where the company enters an individual case. The membership interest, any money the company owes the owner, every guaranty at the balance the creditor claims: each goes on a form signed under penalty of perjury. An individual whose schedules show debts secured by estate property must also file a statement of intention (keep, surrender, redeem or reaffirm) within 30 days after a Chapter 7 filing or by the meeting date, whichever comes first.

3. A Trustee Is Appointed Almost at Once

In Chapter 7, section 701(a) directs the United States trustee, "promptly after the order for relief," to appoint an interim trustee from the panel of private trustees. In Chapter 13, the district's standing trustee usually serves. The Chapter 7 trustee's duties under section 704 include collecting estate property and investigating the debtor's financial affairs, which for an owner means the company's affairs to the extent the owner's property is tangled in them.

The trustee is not the owner's adversary and not the owner's advisor.

4. Every Listed Creditor Learns of the Case by Mail

Rule 2002(a)(1) requires at least 21 days' notice by mail to the debtor, the trustee and all creditors of the meeting of creditors, and the notice carries the debtor's taxpayer identification numbers unless the court orders otherwise. The funders, the landlord who holds a personal guaranty, the equipment lessor: each receives the same envelope.

And that envelope does more than announce a date. It is, for many creditors, the first formal word that the owner has filed, and it starts their own calculations about deadlines described below.

5. The Meeting of Creditors Falls Between Day 21 and Day 40

Bankruptcy Rule 2003(a) places the meeting at least 21 days and at most 40 days past the order for relief in Chapter 7, and between day 21 and day 50 in Chapter 13, with a later outer limit of 60 days where the meeting is held somewhere not regularly staffed by the United States trustee. The United States trustee presides, and the meeting "must include an examination of the debtor under oath."

Expect questions about the company. Who signed which advance; whether distributions continued after the first default; whether equipment moved between the owner and the LLC; whether the business still operates and who now controls its bank account. Section 521(a)(3) requires the debtor to cooperate with the trustee, and a knowing and fraudulent false oath in a bankruptcy case is a federal crime under 18 U.S.C. 152. The meeting is ordinary in form and short in most cases. It is also the one occasion on which the owner's account of the company is taken down under oath.

6. The Creditors' Deadlines Begin to Run From That First Meeting Date

Rule 4004(a)(1) gives creditors and the trustee 60 days after the first date set for the meeting to file a complaint objecting to a Chapter 7 discharge. Rule 4007(c) gives the same 60 days, counted the same way, for a complaint under section 523(c) asking the court to except a particular debt from discharge. Those complaints cover debts for money obtained by fraud or by a materially false written financial statement, for fiduciary defalcation, and for willful and malicious injury, and section 523(c) says such debts are discharged unless the creditor asks and the court rules for it. A creditor that does nothing within the window has, for those grounds, let the question go. An extension requires a motion filed before the time expires.

For an owner whose guaranties back merchant cash advances, this window is where a funder's allegations surface, if they surface at all. A funder may point to a revenue figure on an application, or to a statement about other financing, and argue it was a materially false written statement on which it reasonably relied. The owner may answer that the funder wrote the figure itself (a response funders will call self-serving, though the documents decide it). Whether an application a broker filled in, and the owner signed without reading closely, is the owner's statement "in writing" for these purposes is a question the statute leaves to the facts of each case.

Objections to exemptions run on a separate clock: under Rule 4003(b), within 30 days after the meeting of creditors concludes, or after an amendment to the exemption list. A meeting that is continued has not concluded, so that clock waits.

7. Reaffirmation Is a Choice With Its Own Deadline

A debtor may agree to remain liable on a debt that would otherwise be discharged. Section 524(c) makes such an agreement enforceable only if it was made before the discharge, preceded by the required disclosures, and filed with the court, and Rule 4008(a) requires the filing within 60 days after the first date set for the meeting, subject to extension. The Code does not require an owner to reaffirm a guaranty, and an owner asked to do so should treat the request as a negotiation in which the funder wants something only the owner can give.

A separate course on personal financial management also falls in this period. Section 727(a)(11) withholds a Chapter 7 discharge from a debtor who fails to complete it, subject to exceptions, and the certificate is easy to forget.

Where the Company Stands Meanwhile

None of this touches the LLC's own obligations. Delancey Street negotiates merchant cash advance balances for businesses outside court, starting with a confidential review that costs nothing; it is a settlement company and not a law firm, and it does not represent anyone in a bankruptcy case. Any negotiation for the company while the owner's case is open should run past the owner's bankruptcy counsel first, and an owner facing enforcement against personal assets needs that counsel before anyone else. The envelope that reached the funders reached the company's creditors too, and some of them will read it as a question about the business.