What happens if you need to file bankruptcy again?
If you have filed a bankruptcy and need to file again, your options are a bit more limited for your second case. Whether you can/should refile now or if it would be better to wait a few years can be a complicated decision and there are different costs and benefits to both approaches.
Your refiling limitations depend on a few factors:
- Which chapter of bankruptcy you previously filed and which chapter you intend to refile under;
- Whether you received a discharge in your previous bankruptcy;
- If you previously filed a Chapter 13 bankruptcy, how much of your debts you paid in that case.
What are the time limits on filing multiple bankruptcies?
Note: All of the time periods mentioned below start running from your case filing dates – not the date you received a discharge or when the case closes.
To better understand the reasoning behind these limitations and how one can successfully navigate them, you should quickly read up on the differences between Chapter 7 and Chapter 13 bankruptcy.
Chapter 7 → Chapter 7
Eight years
Section 727(a)(8) of the Bankruptcy Code states that you cannot receive a discharge in a Chapter 7 bankruptcy if you have previously received a filed a Chapter 7 case in which discharge within eight years. All of the time periods mentioned start running from your first case filing date – not when you received your discharge or when the case closes.
11 U.S.C. §727(a)(8)
The court shall grant the debtor a discharge, unless—the debtor has been granted a discharge under [Chapter 7]… in a case commenced within 8 years before the date of the filing of the petition.
Interestingly enough, this rule originates from the Bible. In fact, the entire concept of bankruptcy has been traced back to a specific passage from the Old Testament:
Deuteronomy 15:1-2 At the end of every seven years thou shalt make a release. And this is the manner of the release: Every creditor that lendeth ought unto his neighbour shall release it; he shall not exact it of his neighbour, or of his brother; because it is called the Lord’s release.
When Congress was drafting the Bankruptcy Code, they apparently thought that God was a little too lenient with seven years, so they upped it to eight years.
Chapter 13 → Chapter 13
Two years
Section 1328(f)(2) of the Bankruptcy Code states that you cannot receive a discharge in a Chapter 13 bankruptcy if you have previously received a Chapter 13 discharge within two years. Again, the time period starts running from your first case’s filing date – not the date you received your discharge or when the case closes.
11 U.S.C. §1328(f)(2)
…the court shall not grant a discharge… if the debtor has received a discharge…in a case filed under chapter 13 of this title during the 2-year period preceding the date of [filing the first Chapter 13].
Most Chapter 13 bankruptcy cases last for 3 to 5 years, so this limitation usually takes care of itself and you could file another Chapter 13 case immediately after your first Chapter 13 case closes. However, you can complete chapter 13 plans within less time, depending on the circumstances.
Being stuck in a Chapter 13 repayment plan for several years and then jumping right back on board for another round does not sound like much fun. However, there are cases where it might make sense to stay in Chapter 13 to manage debts that were either incurred after filing your first case or were not discharged in your first case, such as non-dischargeable student loans. Since the payment amount in a Chapter 13 plan is, in part, determined based on your disposable income, continuing in Chapter 13 might reduce your monthly debt payment obligations to a manageable amount.
For instance, if your student loan payments outside of bankruptcy are $1,000 per month, but your disposable income is $300 per month, you could potentially keep your payments down to $300. You still would not receive a discharge of the student loans, and your loan balance might even grow due to interest, but if you are in a situation where your student loan balance is so high that you will never be able to pay it off, this might be a good option. This strategy is sometimes referred to as “Perpetual Bankruptcy.”
As a side note, some judges do not believe that this is a good faith use of Chapter 13 and could deny your plan’s confirmation on that basis. In the Riverside and Orange County Divisions of the Central District of California, it seems to be unanimously accepted.
Chapter 7 → Chapter 13
Four years
Section 1328(f)(1) of the Bankruptcy Code states that you cannot receive a discharge in a Chapter 13 bankruptcy if you have previously received a filed a Chapter 7 in which you received a discharge within four years.
11 U.S.C. §1328(f)(1)
…the court shall not grant a discharge… if the debtor has received a discharge… 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…
However, there is often a substantial benefit in not waiting for the 4-year period to lapse before filing a Chapter 13 after receiving your Chapter 7 discharge. Since Chapter 7 does not discharge certain debts (e.g., mortgages, auto loans, student loans, certain taxes), it may be a good idea to file a Chapter 13 bankruptcy even though you will not receive a discharge at the end of the case. Since your dischargeable debt will be wiped out once you complete your Chapter 7 case, this might make your Chapter 13 much more manageable since you would not need to consider those debts. This strategy is so common that it even has a nickname: “Chapter 20” (because 7 + 13 = 20).
This may be a good strategy if you have a considerable amount of dischargeable unsecured consumer debt (e.g., credit cards, personal loans, medical debt) and you are behind on your mortgage. After you receive your discharge in Chapter 7, you can file a Chapter 13 which will allow you up to 5 years to get caught up on your mortgage.
Chapter 13 → Chapter 7
Six years
Lastly, Section 727(a)(9) of the Bankruptcy Code states that you cannot receive a discharge in a Chapter 7 bankruptcy if you have previously received a filed a Chapter 13 case in which you received a discharge within six years, unless:
- You paid back 100% of your debts in the Chapter 13; or
- You paid back at least 70% of your debts in the Chapter 13; your Chapter 13 plan was proposed in good faith; and represented your “best efforts” (i.e., your payments in the Chapter 13 were at least as much as your disposable income).
11 U.S.C. §727(a)(9) The court shall grant the debtor a discharge, unless— the debtor has been granted a discharge under [Chapter 12 or 13]… 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;
As a general matter, a Chapter 13 repayment plan can pay anywhere from 0% to 100% of non-priority unsecured debts (e.g., not taxes, domestic, child, or spousal support). If you have completed a Chapter 13 plan in which you paid back 100% of your debts, then under subsection (A) the six-year rule does not apply, and you could file a Chapter 7 case anytime after your Chapter 13 case is completed.
Concerning subsection (B), it is already a requirement that a Chapter 13 plan be proposed in good faith [11 U.S.C. §1325(a)(3)] and that you must pay all of your disposable income up to 100% of payment [11 U.S.C. §1322(a)(1), §§1325(a)(1), (b)(1)(B)]. Subsection (B) arguably renders subsection (A) meaningless, and you would not be subject to the 6-year rule so long as your prior case paid at least 70%.
Chapter 11 and 12 Bankruptcy?
I have intentionally omitted references to Chapters 11 and 12 bankruptcy for the sake of readability since these types of bankruptcy are rarely a concern for your everyday consumer bankruptcy filer. Based on a random sample taken from the US Court’s statistics, individual Chapter 11 cases make up less than 0.2% of all bankruptcies, and Chapter 12 “farmer or fisherman” cases are even more rare. However, the rules are pretty simple:
Chapter 11 → Chapter 7 = 8 years [11 U.S.C. §727(a)(8)]
Chapter 12 → Chapter 7 = 6 years, unless 70%-100% [11 U.S.C §727(a)(8)]
Chapter 11 → Chapter 13 = 4 years [11 U.S.C. §1328(f)(1)]
Chapter 12 → Chapter 13 = 4 years [11 U.S.C. §1328(f)(1)]
Chapters 7, 11, 12, 13 → Chapter 11 = no limit [11 U.S.C. §1141(d)]
Chapters 7, 11, 12, 13 → Chapter 12 = no limit [11 U.S.C. §1228]
What to do if you are considering filing bankruptcy again
Taken together, the rules for how often you can file bankruptcy are not as simple as one would hope. In addition to the multiple limitations explained above, one of the requirements of Chapter 7 and Chapter 13 bankruptcy is that you must be coming to bankruptcy in ‘good faith’ [11 U.S.C. §707(b)(3), §1325(a)(3),(7)]. Since this is a very vague concept, it is also subject to the whims of the bankruptcy judge assigned to the case. A person who seeks to file more than one bankruptcy case will undoubtedly be under greater scrutiny and should plan accordingly to consider whether filing bankruptcy again would be their best option. If so, the timing and other factors necessary to be successful in that case.
