How Many Times Can You File for Bankruptcy?
Bankruptcy is a legal process for people who wish to get a fresh start with their finances. When a person or business entity is no longer capable of repaying outstanding debts, filing for bankruptcy may be an option. The process may involve an evaluation of the debtor’s assets, which can be used to pay back some of the debt. Some people or businesses, however, will need to go through this process more than once. Below is a comprehensive guide on filing bankruptcy petitions and determining how many times a person can file for bankruptcy to make federal bankruptcy laws work for you.
How Does Filing Bankruptcy Work?
The debtor, whether an individual or a business, may start the process by filing a petition for bankruptcy in federal bankruptcy court. The court will then discharge the petition by reducing, restructuring, or eliminating existing debts. The bankruptcy court may also dismiss the petition if it finds that a declaration of bankruptcy is not necessary. For example, when the petitioner has enough assets and income to cover the outstanding debt, filing for bankruptcy is unnecessary.
For some people and businesses, it might still be difficult to keep up with their finances even after their debts have been discharged through a bankruptcy filing. In cases like these, the debtor might consider filing bankruptcy petitions again. The good news is that there are no limits on how many times a person may file for bankruptcy. However, the law does set a minimum number of years after which a person may file a subsequent bankruptcy petition.
Different Types of Bankruptcy Explained
The type of bankruptcy a person files would determine the amount of time before he or she can file for a double bankruptcy. The two most common types of filing for bankruptcy chapters are Chapter 7 bankruptcy and Chapter 13 bankruptcy.
Chapter 7 Bankruptcy
Despite her stellar career, singer Dionne Warwick ended up with only $1,000 in cash and $1,500 in clothes and furniture in 1991 while owing over $10 million in federal taxes, franchise taxes, and lawyers’ and managers’ fees. This prompted her filing bankruptcy Chapter 7.
When filing for bankruptcy, Chapter 7 is also known as a “straight” or “liquidation” bankruptcy. In a Chapter 7 bankruptcy, all the debtor’s non-exempt assets are liquidated or sold in order to pay for part of the debt, while the rest of the debt is discharged or forgiven. Exempt assets usually include home equity, motor vehicles, reasonably necessary personal effects — clothing, household goods, furniture — household appliances, some jewelry, pensions, tools of the debtor’s trade, and public benefits. How often filing bankruptcy Chapter 7 can be done depends on how much time has passed since the previous filing.
Use a Liquidation Agreement template to ensure that all necessary information is included. This template will provide a framework for the agreement, including key sections such as definitions, obligations of the parties involved, and the distribution of assets.
Chapter 13 Bankruptcy
In a Chapter 13 bankruptcy, debtors can save their assets by restructuring outstanding debts. Also called a “wage earner’s plan,” this option is available to individuals with a regular income so that they can repay their debts within three (3) to five (5) years. Payments are usually made monthly to an appointed trustee. Here, the debtor does not need to surrender or liquidate assets, such as a home. Filing bankruptcy Chapter 13 may also prevent the foreclosure of mortgages.
Reasons to Change Your Bankruptcy Filing From the Previous Chapter
Changing your bankruptcy filing means changing the rights you may acquire or obligations you may incur. Your repayment plan may change, and the number of your outstanding debts may be modified. A change in filing will also affect how long the bankruptcy stays on your record and the amount of time you must wait for a subsequent bankruptcy filing.
A debtor may switch from Chapter 7 to Chapter 13 if he or she wants to restructure the payment plan to settle undischarged debts from the Chapter 7 filing, such as tax debt.
A debtor may also switch from Chapter 13 to Chapter 7 when he or she can no longer pay obligations under the Chapter 13 filing due to changes in personal or financial circumstances. However, the debtor must be amenable to surrendering some assets.
A debtor may also repeat the same type of bankruptcy filing. Take note, however, that repeating a Chapter 7 filing takes much longer than switching to a different chapter.
What Are the Time Limits
The time limits for filing bankruptcy again depend on the type of bankruptcy previously filed and the subsequent bankruptcy type. The waiting periods between filings are as follows:
- Chapter 7 to Chapter 7 — 8 years;
- Chapter 7 to Chapter 13 — 4 years;
- Chapter 13 to Chapter 13 — 2 years;
- Chapter 13 to Chapter 7 — 6 years.
Take note that the period is calculated from the filing date of the previous bankruptcy petition, not the date the bankruptcy court discharged the bankruptcy.
Filing Another Bankruptcy Before the Time Limit Is Up
The bankruptcy judge may dismiss a petition if it is filed before the end of the waiting period. The time limits exist to prevent debtors from abusing the system or defrauding creditors. In some cases, however, the period may be waived. For example, when shifting from filing for bankruptcy through Chapter 13 to Chapter 7, the conditions for the waiver are:
- When 100 percent of the debt to unsecured creditors has been paid off; and
- When the original case was found to have been filed in good faith.
Consider the Cons of Double Filing
There are several cons to filing bankruptcy again. Prematurely filing a subsequent bankruptcy petition may merit an automatic dismissal of the petition. Filing will also reset time limits, so it is important to be strategic when timing a double bankruptcy filing. Additionally, the judge may allow creditors to demand repayment for previous loans if the double filing is found to be in bad faith.
Consider the pros of double filing
As long as you are filing for bankruptcy after the waiting period has passed, double filing will give you more time to pay outstanding debts. If you need more leeway in paying back debts like child support or alimony, which cannot be discharged under a Chapter 7 bankruptcy, filing for Chapter 13 after four years may be a good strategy. Since repeating a Chapter 13 bankruptcy filing has only a two-year waiting period, this will give you another five years to repay your debts and avoid wage garnishment.
Do I Have Other Debt-Relief Options?
Filing for bankruptcy is not the only way to manage debt. There are other debt-relief options to help people stay on top of their finances without incurring a bankruptcy record. A few examples of alternative debt relief options are:
- Debt settlement;
- Debt consolidation;
- Selling assets;
- Credit counseling; and
- Loans from personal networks.
There are no limits to how many times a person can submit a bankruptcy filing. However, bankruptcy law imposes time limits as to when a debtor can file a second bankruptcy petition. If you have questions, consider consulting with a bankruptcy attorney or law firm to learn how strategically filing for bankruptcy a second time can help you get the most financial and legal protection.