Bankruptcy is a legal proceeding which allows a business or an individual to resolve some of their debts with their creditors. This process allows a debtor to have a financial fresh start. It is important to note that there are certain types of debts which cannot be discharged.
Simultaneously, bankruptcy allows creditors to establish their rights on certain claims. In most instances, a creditor is not permitted to collect on a debt amount once the debtor files bankruptcy.
The creditor is required to wait until after the bankruptcy process is completed in order to resume their collection efforts. This requirement is included in the automatic stay. This is done, in part, because debt payment terms are often re-evaluated and reorganized during the bankruptcy process.
Once a bankruptcy is complete, the debtor is no longer liable for debts which were discharged. The bankruptcy court enters a discharge order which releases the individual from their debt. The bankruptcy will remain on their credit report for up to 10 years.
It is important to be aware that bankruptcies have lasting consequences and should be used as a last resort during extreme financial hardship. An individual has many issues to consider prior to filing for bankruptcy.
Is it Possible to File for Bankruptcy More Than Once?
Yes, it is possible to file for bankruptcy more than once. There are, in fact, no limits to the number of times an individual can file for bankruptcy. There are, however, limits on how often an individual can file if they want to discharge their debts.
There are also time limits for filing bankruptcy, depending on the type. If an individual previously filed for Chapter 7 bankruptcy, they can file for Chapter 7 bankruptcy again after 8 years. They can file for Chapter 13 bankruptcy beginning 4 years after the date they filed their Chapter 7 bankruptcy.
If an individual previously filed for Chapter 13 bankruptcy, they can file for Chapter 13 bankruptcy again after two years. They can file for Chapter 7 bankruptcy beginning 6 years after the date they filed the Chapter 13 case.
There is, however, an exception to this rule. An individual can file for Chapter 7 bankruptcy right away if they:
- Paid 100% of the debts they owed to unsecured creditors in their Chapter 13 case; and
- Paid at least 70% of the claims in the Chapter 13 case. The individual must have proposed the payment plan in good faith and put forth their best effort to repay their creditors.
It is important to be aware that, in some cases, multiple bankruptcy filings may be considered abusive. An abusive bankruptcy may be a case that is filed by an individual who inappropriately uses the bankruptcy process to evade a creditor or to buy time in a collection action, including foreclosures and lawsuits.
Bankruptcy courts frown upon a debtor who files a bankruptcy with no intention of following through with their case. Repeat filers can face consequences for using these types of tactics, which may include a lack of protection from collections, or no automatic stay, or a denial of a discharge.
What are the Requirements for Filing for Bankruptcy a Second Time?
Although bankruptcy law does not set a minimum period that an individual must wait prior to filing for bankruptcy a second time, there is a catch. If an individual files too soon after wiping out their debt in a previous case, they will not be eligible for another debt discharge. The time frames for filing multiple bankruptcies were discussed in the previous section.
In some cases, the individual does not need a discharge, they need time to pay off their debt. For example, if an individual owes federal taxes they could not discharge in bankruptcy and they could not work out a reasonable payment plan, they may file for Chapter 13 bankruptcy a second time and stretch out the payments over a 5 year payment plan rather than have their wages garnished.
Similarly, an individual could file a Chapter 13 case immediately following a Chapter 7 discharge, which is a procedure known as a Chapter 20 bankruptcy. This just provides the individual with time to pay off their nondischargeable debts, which may include child support arrearages, instead of a discharge.
It is important to note, however, that not all courts permit this process. It may also be tricky to qualify for a Chapter 7 bankruptcy as well as demonstrate an individual has enough income to pay a Chapter 13 plan.
It may be possible, though, after considering all of the debts that were wiped out. Prior to attempting this type of bankruptcy, an individual should always consult with an attorney.
Can I Appeal a Previous Bankruptcy Decision?
Yes, it is possible to appeal a bankruptcy court decision. However, the process is different from other courts. A decision made by a bankruptcy judge is binding.
A bankruptcy court has limited jurisdiction as compared to other types of courts. They can only hear bankruptcy cases. If an issue arises that is outside of the bankruptcy, such as a request for modification of child support payments, the bankruptcy court is not permitted to hear it.
A bankruptcy court decision can be appealed. These types of appeals are handled in a different manner than in other courts.
Because bankruptcy courts were created by Congress and did not originate in the Constitution, appeals begin in a federal trial court instead of in an appeals court. In some circuits, appeals are handled by a Bankruptcy Appellate Panel (BAP), which is a three judge panel that reviews the bankruptcy judge’s decision. Circuits who use BAPs include the:
- 1st;
- 6th;
- 8th;
- 9th; and
- 10th.
How Has COVID-19 Affected Bankruptcy Appeals and Second Filings?
COVID-19 has affected every aspect of life throughout the world, including bankruptcy filings. The federal government has provided Americans with aid, including the Coronavirus Aid, Relief, and Economic Security Act (CARES), which includes modifications and amendments to the United States Bankruptcy Code. These changes to bankruptcy requirements may permit an individual to be able to file second bankruptcies when they previously would not have been eligible.
The CARES Act changed the definition of current monthly income to exclude pandemic related federal stimulus payments from being considered disposable income for purposes of determining whether an individual is eligible to file for bankruptcy. It also permits debtors with Chapter 13 payment plans to amend and extend their plans for up to seven years from the due date of their first payment. This requires a notice to creditors, a hearing, and court approval.
It is important to be aware that laws are changing daily regarding COVID-19 bankruptcy issues. The pandemic has also affected court operations. Cases may have been delayed due to court closures and may take longer to resolve than usual.
Because the laws have so recently been amended, the effect on bankruptcy appeals is yet to be seen. However, from a purely logistical standpoint, expect delays in all aspects of court proceedings. It is important to consult with an attorney to determine the most up to date information regarding the pandemic and bankruptcy laws.
Should I Hire a Lawyer for Second Bankruptcy Filing Issues?
Yes, it is essential to hire a bankruptcy lawyer for any second bankruptcy filing issues you may be facing. Your bankruptcy lawyer can evaluate your situation, review your previous bankruptcy or bankruptcies, and determine if a second bankruptcy would help your situation. Your lawyer can also advise you whether or not Chapter 20 bankruptcies are permitted in your jurisdiction.
