Can You File Bankruptcy Twice?
A person is fully entitled and permitted to file bankruptcy twice. The only rules on filing twice involve the time between filings, and that depends on several circumstances, among them if the first case was discharged. If so, the waiting period will be at least two years, and perhaps longer depending on the types of bankruptcy you filed and will file.
The factors that affect the waiting period to file a second time include:
- The result of the first bankruptcy. Was it discharged or dismissed?
- The type of bankruptcy you first filed. There are different waiting periods after Chapter 7 (liquidation) and Chapter 13 (repayment).
- The type of bankruptcy you will be filing the second time.
- The time that has passed since the initial discharge.
The bottom line: There are no legal limitations on how many times a person can file bankruptcy. There are just time limitations on when it can be done.
Is Filing Bankruptcy Twice Bad?
Filing multiple bankruptcies is certainly not ideal, let’s put it that way. Anyone who got into such serious debt problems that bankruptcy was necessary once may have repeated the same mistakes and chose to file a second time.
However, there are times when a second filing is necessary, and important. Those who have worked out a plan and approach with their attorney, financial adviser or credit counselor may find bankruptcy the best option for dealing with a bad financial situation.
It’s important to know the consequences of bankruptcy when considering whether you should file bankruptcy a second time. There will be ramifications on your credit score and credit report, but leaving debt unpaid also will hurt the financial status.
If the approach is well thought out, the second filing may turn out to be a good thing because it will allow for a fresh start and the ability to move forward from the crushing burden of debt.
Types of Bankruptcies
The two main types of bankruptcy are Chapter 7 and Chapter 13. Chapter 7 is usually referred to as a liquidation process, Chapter 13 a repayment process. Together, they make up 99% of all bankruptcy filings.
It’s important to understand the difference between the two kinds of debt: secured and unsecured. Secured debts are protected/backed by collateral; think home loan or car loan. Unsecured debts are not backed by collateral; think credit card, student loan or medical debt.
In Chapter 7, filers sell non-exempt assets to make a lump sum payment to creditors that will settle their debts. Exemptions can be filed to protect items required for every-day living. Other items that can be protected include what you need to do your job – car, tools, computers etc. The jewelry or artwork, though, could be sold. The filer loses some assets, but keeps enough to continue work and life. The debtors might not be repaid in full, but receive something to settle the debt.
In Chapter 7, unsecured debt could be discharged completely. An American Bankruptcy Institute survey in 2018 showed good news about keeping your house when filing Chapter 7. ABI found that 93% of those who file exemption paperwork properly can protect their main assets through bankruptcy. Handled properly, Chapter 7 can lead to a successful discharge in four-to-six months.
In Chapter 13, you and the courts work out an agreed-on payment plan to settle debts. This is a more complicated process than Chapter 7 and typically requires hiring an attorney – for your own protection. Chapter 13 typically means keeping your home and/or car in exchange for making agreed-on payments that address your entire debt situation faithfully and on time. A typical payment plan lasts three-to-five years and if honored leads to successful discharge.
What is discharge? It’s an order filed at the end of a successful bankruptcy case, and the desired result in filings. Said order from the court relieves the filer from paying discharged debts, and prevents creditors from collecting on that debt. In Chapter 7, you pay a lump sum and debts are discharged. In Chapter 13, you make regular payments and debt is discharged.
While a discharge is a positive conclusion, dismissal is not.
Dismissal results from filers not properly following through on the bankruptcy process. It means the bankruptcy court has dismissed your case with no result, which means the protections you could have gained in the process are gone. Essentially, you’re back where you were before filing, as if you had never filed.
Filing Again Without Bankruptcy Discharge
If your bankruptcy did not end with a successful discharge, in most instances you can immediately file a second time. Typically this means your case was dismissed, which puts you right back in the same debt position when you filed.
Reasons for dismissal could include not filing all documents properly and on time, not showing up for a required meeting with the court, not making the required payments or not being truthful with the court. All reflect poor judgment and the wrong approach for a court process, and often anger the court.
If you failed to appear for a required hearing, for example, or ignored a court order – never do this – the court may order a 180-day (six month) delay on filing again.
Another instance when the six-month stay can be placed involves the automatic stay, which the court usually orders on filing and protects you from foreclosure or having your wages garnished while your case proceeds. If, for whatever reason, you agree to dismiss the case when a creditor seeks relief from the stay, the court will see that as filing in bad faith and impose the six-month delay on filing again.
None of this would be good. It also speaks to the need to hire an attorney to guide you through the process. A bankruptcy attorney understands court requirements, and part of his or her job is ensuring you meet all requirements. Yes, it may cost money up front, but it probably would be a lot less than it would cost if you do not follow procedures and have to deal with the fallout from a dismissal.
It is a good idea to receive pre-bankruptcy credit counseling to gain some guidance on your options. A nonprofit credit counselor can assess your financial position, and offer sound advice on the best steps to take toward financial recovery. Pre-bankruptcy credit counseling may offer ideas for developing a budget and ways to get back on sound financial ground without bankruptcy.
Filing Again With Bankruptcy Discharge
Different time limits and waiting periods apply to filing a second bankruptcy after your first filing was discharged successfully. The time frame is based on whether you first filed Chapter 7 or 13, and whether you plan to file Chapter 7 or 13 the second time.
The timing on the waiting period is based on the date you filed, not the date of discharge.
Filing Chapter 7 After Chapter 7
The waiting period following a successful first Chapter 7 discharge is eight years to file Chapter 7 a second time. Again, the eight years begins the day you first filed for Chapter 7 bankruptcy.
Filing Chapter 7 After Chapter 13
The waiting period is six years if you want to file Chapter 13 after filing Chapter 7. You gain a benefit if you paid your unsecured creditors (credit cards, medical bills) everything you owed in the initial Chapter 13 bankruptcy. If that is the case, the waiting period can be waived. It would be wise to consult an attorney if considering this option.
Filing Chapter 13 After Chapter 7
You must wait four years if you want to file Chapter 13 after first filing Chapter 7. This timeframe applies if you are hoping to achieve a second discharge. If a secured debt has become burdensome, you may wish to file Chapter 13 merely to catch up on the debt without seeking discharge of the debt. Think of a home loan with a hefty mortgage remaining; it’s not practical to think that this debt can be fully discharged in bankruptcy, but it does make sense to catch up on the payments. Some call this type of approach Chapter 20, though this is not an official term.
Filing Chapter 13 After Chapter 13
The shortest waiting period of two years comes if you file Chapter 13 twice. This will allow you to get a discharge in the second case.
Alternatives to Filing Bankruptcy Twice
Bankruptcy has its benefits in helping people work their way out of debt. But it has negative impacts on your credit score, and it takes a toll mentally and financially. The time limits for filing twice also can be problematic if debt has again become a problem.
Alternatives to waiting out the required time could include debt settlement or debt consolidation, which can be worked out with a nonprofit credit counselor. A bankruptcy lawyer also could walk you through options.
Debt settlement could be a good approach for unsecured debts like medical or credit card debt. In this approach, you and a counselor work out an amount to pay the debtors to settle the debt. It might not be the entire amount, but the creditor at least knows it will receive something whereas in bankruptcy it may receive nothing.
Debt consolidation combines multiple unsecured debts into one that is paid off at a lower interest rate. This allows for one payment per month, and reduces the total interest paid. Typically it is paid to a credit counseling agency, which then pays the individual creditors. This approach requires regular payments and a steady source of income. Depending on what form of consolidation you choose, it may require a credit score of 670 or higher.
About The Author
Max Fay has been writing about personal finance for Debt.org for the past five years. His expertise is in student loans, credit cards and mortgages. Max inherited a genetic predisposition to being tight with his money and free with financial advice. He was published in every major newspaper in Florida while working his way through Florida State University. He can be reached at [email protected].
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