Bankruptcy How Often Can You File: Understanding Eligibility, and Impact on Your Financial Fresh Start
The bankruptcy process allows individuals or businesses to eliminate some or all of their debts under the power of the bankruptcy discharge. A bankruptcy filing will have a significant impact on your credit score and financial future, and as a result, it is important to understand how often you can file bankruptcy and the impact of multiple filings on eligibility, and your financial fresh start.
Types of Bankruptcy
There are different forms of bankruptcy available under the bankruptcy code. The decision of which bankruptcy chapters could work for you will depend on many different factors, including income, personal property, business assets, and more. Many individuals, however, will end up filing bankruptcy under Chapter 7 or Chapter 13, as these cases are generally more consumer oriented rather than business oriented.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is liquidation bankruptcy. It is designed for individuals who have little or no disposable income and cannot afford to repay their debts. In bankruptcy cases, exemptions determine what property is protected versus not protected. In a Chapter 7 bankruptcy, the bankruptcy trustee will sell your non-exempt assets to repay your creditors, while you generally get to keep your exempt assets. A discharge of debt applies to all debts, unless those debts are specifically listed as non dischargeable debts under the Bankruptcy Code, or a judge determines that the discharge should not apply to a particular debt. Most unsecured debts, such as credit card debt and medical bills, can be discharged in a Chapter 7 bankruptcy.
Eligibility criteria
There are several different criteria to determine whether someone may qualify for a chapter 7 case. One such criteria is the means test. The means test compares your income to the median income in your state for a household of your size. If your income is below the median income, you are eligible for Chapter 7 bankruptcy. If your income is above the median income, there is a presumption that you have enough income to make monthly payments of all your debts. Even if this presumption arises, you may still be able to qualify for Chapter 7 bankruptcy if you can demonstrate that you do not have enough disposable income to repay your debts based on special circumstances.
Process of filing
The process of filing and moving forward with a chapter 7 bankruptcy case is relatively simple. There is a voluntary petition and schedule that must be prepared and filed, along with the filing fee. Additionally, a certificate of pre-bankruptcy credit counseling must be completed and filed with the petition. A meeting of creditors is scheduled within 30 to 45 days of the filing, where a trustee will ask you questions under oath. Generally, the trustee is looking to confirm the information included in the petition, ensure that there isn’t property available to be liquidated, and ensure there is no fraud. Assuming the hearing is unremarkable, the trustee enters a report of no distribution. The case remains open for about 90 days in case any creditor wants to file an objection. Additionally, the debtor needs to complete and file a certificate of debtor education. If there are no objections or any other actions in the case, the bankruptcy judge signs and enters the discharge order, and the case is closed.
Pros and cons
The main advantage of Chapter 7 bankruptcy is that it allows you to eliminate most (if not all) of your debts owed to unsecured creditors and get a financial fresh start. Additionally, if you are facing creditor collection efforts, such as a foreclosure or wage garnishment, the automatic stay can provide immediate relief by stopping those activities when the case is filed.
A bankruptcy case, however, can also have a significant impact on your credit score and financial future. Bankruptcy filings stay on your credit report for up to 10 years and can make it a little more challenging to obtain credit in the future.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a type of bankruptcy based on a court-approved debt repayment plan. It is for individuals who have a regular income and can afford to repay some percentage of their debts over time. In a Chapter 13 bankruptcy, you will work with a bankruptcy trustee to develop a repayment plan that lasts between three and five years. The monthly amount, as well as the length, of the bankruptcy payment plan will depend on your income, expenses, as well as your assets in bankruptcy. For unsecured debts, such as credit debts, medical debt, and even deb consolidation loan, the portion not paid through the chapter 13 plan is discharged in a Chapter 13 bankruptcy.
Eligibility criteria
To be eligible for Chapter 13 bankruptcy, you must have a regular income. Additionally, the sum of all your unsecured claims and your secured debts must be less than $2,750,000.
Process of filing
The process of filing and moving forward with a chapter 13 bankruptcy is similar to the process of a chapter 7 bankruptcy early on. To file for Chapter 13 bankruptcy, you must prepare and file a bankruptcy petition along with schedules with the bankruptcy court. A chapter 13 plan will also have to be paid, and proposed payments under the plan have to be sent to the chapter 13 trustee within 30 days of the case filing. Thereafter, you will still appear for the meeting of creditors.
At this point, a chapter 13 case starts to differ from a chapter 7 case. You will have to work with the bankruptcy trustee to get the case ready for confirmation. This means that the plan is a confirmable plan, all documents have been filed, and you are current with the plan payments.
Pros and cons
The main advantage of Chapter 13 bankruptcy is that it allows you to repay your debts over time and keep your assets. It also provides greater flexibility when compared to a chapter 7 case. You also have the right to voluntarily dismiss a chapter 13 case. One of the challenges of a chapter 13 case is that it is a lengthy process, since you will be under court supervision for at least 3 years. Another challenge is that if you want to use money greater than a certain amount, or sell property like a car, you will have to seek a court order before doing any of these things.
How Often Can You File for Bankruptcy?
When people ask about how often you can file for bankruptcy, they are generally asking about waiting periods between being able to obtain another discharge. The waiting periods to obtain a discharge in a successive case will depend on when you previously filed, as well as the previous chapter your case was filed under.
Waiting Periods to Qualify for Bankruptcy Discharge
If you filed a Chapter 7 bankruptcy case and received a discharge in that case, you must wait 8 years before you can obtain a discharge in another Chapter 7 case. The clock starts ticking based on when the last case was filed. Specifically, the statute, 11 USC Section 727(a)(8) states,
“The court shall grant the debtor a discharge unless the debtor has been granted a discharge under this section, under section 1141 of this title, or under section 14, 371, or 476 of the Bankruptcy Act, in a case commenced within 8 years before the date of the filing of the petition.”
If you previously filed a Chapter 13 bankruptcy case and received a discharge in that case, then there is a six-year waiting period before filing a chapter 7 case to obtain a discharge. The statute, 11 USC Section 727(a)(9) states,
“The court shall grant the debtor a discharge unless the debtor has been granted a discharge under section 1228 or 1328 of this title, or under section 660 or 661 of the Bankruptcy Act, in a case commenced within six years before the date of the filing of the petition, unless payments under the plan in such case totaled at least-(A) 100 percent of the allowed unsecured claims in such case; or (B)(i) 70 percent of such claims; and (ii) the plan was proposed by the debtor in good faith, and was the debtor‘s best effort; If you previously filed a chapter 7 case and obtained a discharge, then you must wait 4 years before filing a chapter 13 case to obtain a discharge in the chapter 13 case. The statute, 11 USC 1328(f)(1) states, “Notwithstanding subsections (a) and (b), the court shall not grant a discharge of all debts provided for in the plan or disallowed under section 502, if the debtor has received a discharge- (1) in a case filed under chapter 7, 11, or 12 of this title during the 4-year period preceding the date of the order for relief under this chapter” If you previously filed a chapter 13 case where you obtained a discharge, then you must wait 2 years before filing another chapter 13 where you can obtain a discharge. The statute, 11 USC 1328(f)(2) states, “Notwithstanding subsections (a) and (b), the court shall not grant a discharge of all debts provided for in the plan or disallowed under section 502, if the debtor has received a discharge- (2) in a case filed under chapter 13 of this title during the 2-year period preceding the date of such order.”
Factors to consider before a successive bankruptcy filing
If you filed bankruptcy in the past, you could file a successive case. One thing to consider is whether you would be entitled to a discharge, as described above. Another important consideration is whether you would be entitled to the protection of the automatic stay. This is critical when someone’s financial situation is being impacted by an event like a foreclosure or a wage garnishment. If you would not be entitled to the protection of the automatic stay in subsequent bankruptcy filings, then the prospects of a successful bankruptcy case may be bleak.
Before filing for bankruptcy (again), it is really important to speak with a bankruptcy attorney to explore how your previous filing will impact a new filing. Sometimes, you may have to do extra work upfront to inure the benefit of the automatic stay.
Conclusion
A person may be able to file bankruptcy multiple times, but may not be entitled to a discharge each time. Whether you can receive a discharge depends on when you filed your last case and what kind of case it was. Additionally, the automatic stay may not come into effect in a subsequent filing.
Bankruptcy is a procedurally complex process that can have a significant impact on your credit score and financial future. That is why it is critical to have guidance from an experienced bankruptcy attorney. If you are thinking about bankruptcy and how often you can file, contact the Law Office of Richard Kistnen, an experienced bankruptcy lawyer, to understand your options and eligibility for your situation. To schedule your confidential, no obligation bankruptcy consultation, call (718) 738-2324 today or book your virtual consultation right now.