Facing financial trouble? If you've declared bankruptcy previously and are considering filing again, the good news is there's no limit on the number of times you can file for bankruptcy. There are, however, time limits and other restrictions regarding how often you can file.
In this post, we'll explain the types of bankruptcy, their time limits and how to navigate the bankruptcy process.
What is a bankruptcy discharge?
People file for bankruptcy to get their debts discharged. This bankruptcy discharge is a permanent action that wipes out certain debts so unsecured creditors cannot collect.
When a judge issues a bankruptcy discharge, they declare that you're no longer responsible for paying your debts. A bankruptcy discharge only applies to debts you accrued before you filed for bankruptcy, so make sure you include a complete list of all of your property and debts when you file.
It is important to note that not all debts can be discharged, and you will continue to be responsible for taxes, child support, alimony, court fines, criminal restitution and personal injury caused by driving under the influence of drugs or alcohol.
You will likely also continue to be responsible for student loans unless a court approves an adversary proceeding, in which you state that repaying your student loan debt would cause you and any dependents financial hardship. In this scenario, the judge can then decide to discharge all, some or none of your student loan debt.
How does each type of bankruptcy differ?
There are six types of bankruptcy, each designed for a different situation and found in a different chapter of the U.S. Bankruptcy Code. The two most common types of bankruptcy, and the most applicable to individual consumers, are Chapters 7 and 13:
- Chapter 7: Sometimes referred to as liquidation bankruptcy, Chapter 7 collects, liquidates and distributes assets to creditors, thereby discharging you from debt.
- Chapter 13: This type of bankruptcy reorganizes your finances under a repayment plan that must be completed within three or five years. Note that this is only allowed if the consumer has a regular income and the debt does not exceed the threshold set forth in the Bankruptcy Code.
In short, with Chapter 7, you lose your assets but can clear your debt, while with Chapter 13 you can keep your assets and reorganize your debt into a manageable payment plan. It normally takes about four to six months to get a bankruptcy discharge in a Chapter 7 case, whereas in a Chapter 13 case, payments are usually made over a three to five-year payment plan.
When you file under Chapter 7, a court trustee will review your assets to decide whether any are worth selling, or liquidating, to pay off creditors. You will also have to attend a meeting of the creditors, where those that you owe can ask you questions about your debt and finances. Not everyone qualifies for Chapter 7 since you have to pass a means test based on your state's median income. In contrast, there is no maximum income restriction to file under Chapter 13.
Before you can file under either chapter, you have to complete a mandatory credit counseling course approved by the Department of Justice, which usually costs between $15 and $30. Bankruptcy filing fees for each chapter differ by state.
The remaining four types of bankruptcy are only applicable for municipalities, businesses, farmers and foreign cases, but here's a quick overview:
- Chapter 9: Protects financially distressed municipalities from creditors while developing a plan to reorganize and reduce its debts
- Chapter 11: Allows a business to continue to operate while creditors and the court approve a plan to repay its debts.
- Chapter 12: Lets family farmers continue to operate while filing for bankruptcy, reorganizing their business affairs and repaying all or part of their debts.
- Chapter 15: Gives debtors and creditors a way to assert their rights in insolvency cases in foreign countries.
Can you file for bankruptcy multiple times? How often?
You can file for bankruptcy as many times as you want within the same chapter of bankruptcy law under which you received a discharge. However, you will have to wait between two and eight years to do so depending on the chapter under which you are filing.
While Chapter 7 is usually the fastest way to file for bankruptcy and get out of debt, it also requires the longest waiting time if you want to file again. If your debts were discharged under a Chapter 7 bankruptcy, you have to wait eight years from the date you filed before you can file again under Chapter 7.
You only have to wait two years to file for Chapter 13 bankruptcy from the date of your last Chapter 13 bankruptcy discharge, but this is a pretty unlikely scenario since Chapter 13 debt restructuring usually takes three to five years to repay.
What if I want to file under another chapter?
If you have already declared bankruptcy under one chapter, you may be able to change your case to another chapter. However, there is a waiting period for this scenario as well, depending on the chapter of your new filing.
Can you file for Chapter 7 bankruptcy after Chapter 13?
You must wait six years from your previous Chapter 13 filing before you can file for Chapter 7 bankruptcy. However, you can get the six-year waiting period waived if you have paid off at least 70% of your unsecured debts from your Chapter 13 filing and can show you tried your best to repay on a plan that you made in good faith.
Can you file for Chapter 13 bankruptcy after Chapter 7?
You can also file for Chapter 13 bankruptcy after having previously been discharged under Chapter 7, but you will have to wait four years from the date of your Chapter 7 filing.
There is a way to avoid the four-year waiting period, however, if you agree that your debt can't be discharged under Chapter 7. This allows you to file immediately and take action like setting up a payment plan for any debt that you wouldn't fully discharge under your Chapter 7 filing.
In fact, when you use Chapter 13 to establish a payment plan for remaining debts after a Chapter 7 filing, there's even a nickname for this sequencing of filings: Chapter 20. While Chapter 20 bankruptcy is only a colloquial term, it shows that it does happen relatively often.
What if a case was dismissed with prejudice?
If your case was dismissed with prejudice, this means that the judge believed you may have committed bankruptcy fraud by hiding assets, omitting information from your bankruptcy papers, filing numerous cases to delay your creditors or willfully disobeying the court's orders.
If the judge dismisses your case with prejudice, they will often issue an order that will prevent you from filing for bankruptcy for a specified period of time or could even forever prevent you from discharging debts included in your dismissed case.
How will filing more than once impact credit?
Filing for bankruptcy more than once could cause long-term harm to your credit. It will lower your credit score and make it more difficult to meet financial criteria for things like mortgages and additional credit cards.
Chapter 7 bankruptcies stay on your credit report for 10 years, while Chapter 13 filings will show up for seven years. Filing twice means both filings will appear on your credit score for the allotted duration. Your credit score can be redeemed, however, if you manage your credit responsibly after your bankruptcy process concludes.
Before filing for bankruptcy a second time, consider whether there's an alternative approach that could alleviate your financial strain. You may be able to negotiate with debt collectors to develop a repayment plan or pursue a debt consolidation loan to bring payments into the realm of possibility for you.
You could also ask friends and family for support and look into applying for government assistance programs to help you make ends meet. As you consider your options, seek out free financial counseling to navigate your way out of financial trouble and set yourself up for success on the other side.
How will filing a second time impact existing payment plans?
You can use a bankruptcy discharge from a second bankruptcy filing to alter existing payment plans under your previous filing. For example, you could file for Chapter 7 bankruptcy to liquidate your assets in order to discharge your debt if you're not able to meet your payment plan under a previous Chapter 13 filing.
Alternatively, you could use a Chapter 13 filing to develop a payment plan for debts left over after a Chapter 7 bankruptcy.
What is double filing and is it right for you?
Double filing is when you file for bankruptcy under Chapter 13 right after your Chapter 7 bankruptcy case has concluded. As mentioned above, this type of filing is nicknamed Chapter 20 bankruptcy. This "chapter" is not part of the U.S. Bankruptcy Code and is instead derived from adding 13 and 7 to get 20.
If you are considering this approach, there are pros and cons that you should consider.
Pros of Chapter 20 filing
- Chapter 20 filing gives you a chance to clear out more debt than if you were to file under Chapter 7 or Chapter 13 alone.
- This happens because you can get rid of unsecured debt under Chapter 7, thereby decreasing your debt below Chapter 13 limits, and then use Chapter 13 to set up a three to five-year repayment plan to pay off the rest of your secured debt that wasn't discharged under Chapter 7.
- This payment plan can help you catch up on any debts that are past due, such as your auto loan, mortgage or medical bills.
Cons of Chapter 20 filing
- Double filing requires you to wait four years after your Chapter 7 case before you can file under Chapter 13. This extends the time and effort required to put your financial house back in order.
- Beyond this, a Chapter 20 filing approach can be difficult to execute since it requires you to prove that you are acting in good faith by filing under Chapter 13 after concluding your Chapter 7 case.
- If you are willing to commit the time and energy required for a Chapter 20 approach, be aware that you will not be able to discharge debts like taxes, student loans, child support and alimony, so plan accordingly.
Get the right legal help for your financial management
Filing for bankruptcy can be a complex legal process. While you are allowed to represent yourself, hiring a bankruptcy lawyer could increase the likelihood of a favorable outcome. To find a bankruptcy attorney, check with the National Association of Consumer Bankruptcy Attorneys and the American Bar Association.
If you cannot afford an attorney, reach out to the Legal Services Corporation, which gives grants to independent legal organizations so they can provide legal aid to people for civil cases, including those related to debt.