Bankruptcy is a legal process for those who wish to get a fresh start with their finances. When a person or business entity is no longer capable of repaying outstanding debts, it may file a petition for bankruptcy. The process may involve an evaluation of the debtor’s assets, which will be used to pay back some of the debt.
Some people or businesses, however, will need to do this more than once in their lifetime. This article provides a comprehensive guide on how many times one can file for bankruptcy, as well as some tips on how 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 at the federal court. The court will then discharge the petition by reducing, restructuring, or eliminating existing debts. The bankruptcy court may also dismiss the petition when it finds that a declaration of bankruptcy is not necessary. For example, when the petitioner has enough assets and income to cover their outstanding debt.
For some people and businesses, it might still be hard to keep up with their finances even after their debts are discharged. In cases like these, they might want to file for bankruptcy again. The good news is that there are no limits on how many times you may file for bankruptcy. However, the law sets a minimum number of years after which one may file a subsequent bankruptcy petition.
Different Types of Bankruptcy Explained
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 to file a Chapter 7 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 can you file Chapter 7 bankruptcy? That depends on how much time has passed since your previous filing, which shall be discussed later in this article.
Chapter 13 Bankruptcy
On the other hand, 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 their assets, such as their home. It 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. It will also affect how long the bankruptcy stays on your record and the amount of time you may file for a subsequent bankruptcy filing.
For instance, you may switch from Chapter 7 to Chapter 13 if you want to restructure your payment plan to settle undischarged debts from your Chapter 7 filing, such as tax debt.
You may also switch from Chapter 13 to Chapter 7 when you can no longer pay your obligations under the Chapter 13 filing due to changes in your personal or financial circumstances, and you are amenable to surrendering some of your assets.
On the other hand, you may also repeat the same 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 a subsequent bankruptcy depend on the type of bankruptcy previously filed and the second bankruptcy. The limits 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, and not on the date the bankruptcy court discharged the bankruptcy.
Filing Another Bankruptcy Before the Time Limit Is Up
The bankruptcy judge may dismiss the petition if it was filed before the time limit is up. 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 a Chapter 13 bankruptcy to a Chapter 7 bankruptcy. The conditions for the waiver are:
- When 100% of the debt to unsecured creditors has been paid off; and
- The original case was found to be filed in good faith.
Consider the cons of double filing
Prematurely filing a subsequent bankruptcy petition may merit an automatic dismissal of your petition. Take note that filing will also reset time limits, so it is best 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 file after the time limits have passed, double filing will give you more time to pay outstanding debts. If you need more leeway in paying back debts such as child support or alimony, which cannot be discharged under a Chapter 7 bankruptcy, filing for Chapter 13 after four years is a good strategy.
Since repeating a Chapter 13 filing has only a two-year limit, this will give you another five years to repay your debts and avoid wage garnishment.
Can a bankruptcy attorney help me file bankruptcy sooner?
A bankruptcy attorney can help you come up with the best options and strategies for filing a second bankruptcy. While they can’t really get around the time limits, they can advise you if it’s possible to file sooner with a different filing or, under specific circumstances, if the time limits may be waived.
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 you stay on top of your finances without incurring a bankruptcy record.
A few examples of alternative debt relief options are:
- Debt settlement;
- Debt consolidation;
- Sell your assets;
- Get credit counseling; and
- Take out loans from your personal networks.
There are no limits to how many times you can file for bankruptcy. However, bankruptcy law imposes time limits as to when you can file a second case of bankruptcy. When in doubt, consult a bankruptcy attorney or law firm to advise you on how to strategically file a second bankruptcy to get the most financial and legal protection.