The COVID-19 pandemic has drained millions of bank accounts and destroyed thousands of businesses. But it’s expected to be good for one business: bankruptcy.
When stimulus payments and forbearance measures end, experts expect bankruptcy filings to surge. The long-term picture might force people to file more than once.
But is that even possible?
The good news – if it can be called that – is there’s no law against filing for bankruptcy twice, thrice or however many times you reach that point of desperation and want a way out.
However, there are plenty of rules on how often you can file a case. They’re a little complicated, so let’s take a look at what you’d need to know.
How Long Do You Need to Wait Between Bankruptcies?
While there’s no law restricting how frequently you can file a bankruptcy, there are a few practical matters that can limit you.
First, if your filings are abusive or for the sole purpose of delaying or frustrating your creditors, a bankruptcy judge can stop you from filing. When this happens, a judge may dismiss your case with a “one year bar”, for example, restricting you from filing a bankruptcy petition within the next year.
Second, the bankruptcy code restricts how frequently you can obtain a bankruptcy discharge. In other words, the bankruptcy code restricts how often your debts can be forgiven. If you received a discharge in your first bankruptcy, then a set amount of time must pass before you can have your debts discharged by the courts again. So, while you can file for bankruptcy as many times as you need, you won’t receive a second discharge until a certain amount of time has passed.
You may be wondering should you file bankruptcy if you can’t have your debts forgiven, but there are many reasons you would do this. You may want to file for the purpose of establishing a payment plan, to repay mortgage arrears, or to catch up on missed car payments, for example.
Whether your eligible for a discharge in your second bankruptcy case depends on whether you received a discharge in the first case, what type of discharge you received, and what type of case you’re filing. We discuss these rules below.
There are alternatives to bankruptcy if you would rather not wait out the time limit. Participating in a credit counseling session with a nonprofit agency is a good place to start. They’ll help figure out your options, which might include a debt management plan (DMP). A DMP is less harmful to your credit score than bankruptcy, but it can be a difficult program to qualify for.
Another benefit of debt management is that you can quit the program at any time. You might be able to find much needed debt relief through a DMP while you wait out the bankruptcy time limit.
The following combinations are how long that wait is.
Chapter 7 to Chapter 13 – Time Limit
Chapter 7 to Chapter 7 – Time Limit
Chapter 7 is the quickest way to debt relief, but you can’t be a serial filer. You have to wait eight years between filing dates, the longest amount in the Bankruptcy Code.
Chapter 13 to Chapter 7 – Time Limit
The standard wait is six years, but it’s not chiseled in stone.
The waiting period is often waived if you repaid all your debts under Chapter 13 provision, or you repaid at least 70% of them and showed a good-faith effort to pay them all.
If you meet those requirements, you could file for Chapter 7 within a year of the Chapter 13 discharge.
Chapter 13 to Chapter 13 – Time Limit
You can file a second Chapter 13 after two years, but that’s an unusual maneuver since the minimum length of a Chapter 13 repayment is three years. Unforeseen hardships may hit and necessitate a quicker second filing.
How Many Times Can You File Bankruptcy?
There are time limits between filings, but there is no limit on the number of times you can file. Theoretically, someone with faulty debt-management skills could file a dozen or more bankruptcies in their lifetime.
That would make for some tough financial sledding, but at least they might make the Guinness World Records for “World’s Lowest Credit Score.”
Refiling Bankruptcy After a Dismissal
“Dismissal” may sound like “discharge,” but there’s a huge difference.
A discharge means you’ve met all the requirements set by the bankruptcy court. You’re no longer on the hook for the applicable debts and your case is closed.
Dismissal means your case has been closed without your debts being eliminated. It’s as if you never filed for bankruptcy. You’re back to Square One and your creditors can start hounding you again.
You can refile after a dismissal, but how soon depends on why your case was dismissed. For instance, you must complete a credit counseling course from an approved agency within 180 days before filing for bankruptcy.
The counselor gives you an idea whether there’s a better alternative to bankruptcy, like enrolling in a DMP. If you decide to go ahead with bankruptcy, you must have a certificate showing you completed the counseling course.
Failure to comply will result in the court automatically dismissing your case. But if you scramble and take the course, you would likely be permitted to refile right away.
If it looks like you’re trying to game the system, you will have to wait 180 days to refile. The bankruptcy code defines that as “willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case.”
Examples would be:
- Destroying records.
- Lying to the court.
- Concealing or transferring property in an attempt to defraud creditors.
In other words, if you acted in good faith you should be able to refile pretty quickly. But whether you’re new at bankruptcy or have filed a dozen times, the first thing you should do is find a bankruptcy attorney (which will probably cost money) or talk to a certified credit counselor (which probably won’t) and get some professional advice.
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].
- Pandise, E. (2020, May 15) From Friendly's to J. Crew, Main Street bankruptcies continue. Retrieved from https://www.nbcnews.com/business/consumer/which-major-retail-companies-have-filed-bankruptcy-coronavirus-pandemic-hit-n1207866
- N.A. (2020, November 12) Q3 Shows Highest Chapter 11 Filings Since Great Recession. Retrieved from https://www.globenewswire.com/news-release/2020/11/12/2125819/0/en/Q3-Shows-Highest-Chapter-11-Filings-Since-Great-Recession.html
- Henricks, M. (2020, September 23) After The Covid-19 Deluge, A Bankruptcy Tidal Wave? Retrieved from https://www.forbes.com/sites/advisor/2020/09/23/after-the-covid-19-deluge-a-bankruptcy-tidal-wave/?sh=4b03a8254aba
- N.A. (2020, November 4) Executive Summary: COVID-19 Pandemic Spurs Wave of Mega Corporate Bankruptcies. Retrieved from https://www.natlawreview.com/article/executive-summary-covid-19-pandemic-spurs-wave-mega-corporate-bankruptcies