Personal bankruptcy is for individuals who, under their current circumstances, are not able to repay the debt that they have acquired. An individual wishing to declare personal bankruptcy will either file what is known as a Chapter 7 bankruptcy case or a Chapter 13 bankruptcy case. It’s possible for an individual to file under Chapter 11, but it is much more complicated, so most people pursue either a Chapter 7 or 13 bankruptcy.

Chapter 7 bankruptcy is for people who have little income and therefore, no reasonable hope of repaying their debts. A successful Chapter 7 bankruptcy case will result in the forgiveness of and discharge of qualifying debt (things like tax debt, student loan debt, and back child support are not considered qualifying debt).

Chapter 13 bankruptcy is for people who have income and could actually manage their debt if they had a workable payment plan. This chapter will help someone who is struggling to pay debts, but is not completely insolvent.

Businesses can also file for bankruptcy. A business wishing to declare bankruptcy will either need to file under Chapter 7 or Chapter 11.

A business filing Chapter 7 bankruptcy will have their debts discharged, but the entity must be dissolved afterward and the business will no longer exist.

In contrast, Chapter 11 bankruptcy is for businesses who need to either reorganize or liquidate their assets in order to repay their debts. A successful Chapter 11 filing will usually result in a reorganization. Businesses wishing to declare Chapter 11 bankruptcy get to propose their own repayment plans at first, but creditors can also propose reorganization plans. The plan that is selected is subject to either approval or disapproval based on a vote of the creditors.

One of the biggest differences between personal and business bankruptcy is the “means” test. The means test takes into account your income, your expenses, and your family size to determine whether you have enough disposable income to repay your debts. Individuals have to participate in a means test to determine if they are eligible for a Chapter 7 or a Chapter 13 bankruptcy, while businesses do not have to prove this for a Chapter 11 filing.

In addition, businesses filing for bankruptcy can cancel contracts with creditors if it would be financially favorable to both parties to do so. Individuals filing for bankruptcy do not get that option for debt exempt from bankruptcy.

Can I File for Bankruptcy More Than Once?

It is possible to file bankruptcy many times. In fact, there are no limits to the number of times you can file for bankruptcy and you can file for bankruptcy as often as you like. However, there are time limits on how often you can file if you want to discharge your debts.

The time limit will depend on what type of bankruptcy you are filing. If you previously filed for Chapter 7 bankruptcy,

  • You can file for Chapter 7 bankruptcy again after eight years.
  • You can file for Chapter 13 bankruptcy beginning four years after the date you filed the Chapter 7 case.

If you previously filed for Chapter 13 bankruptcy,

  • You can file for Chapter 13 bankruptcy again after two years.
  • You can file for Chapter 7 bankruptcy beginning six years after the date you filed the Chapter 13 case.
    • There is an exception, however. You can file for Chapter 7 bankruptcy right away if:
      • you paid 100% of the debts that you owed to unsecured creditors (things like credit card debt, medical bills, utility bills, and student loans) in your Chapter 13 case, or
      • You paid at least 70% of the claims in the Chapter 13 case. You must have proposed the plan in good faith and put forth your best effort to repay creditors.

How Do I Start the Bankruptcy Process?

  1. Gather your documents. The first thing you will want to do is collect all of your financial documents to make sure you fully understand your current financial situation. You will want to make a list of all your debts so that you don’t have to hunt down the information when you’re filling out your bankruptcy forms.

    A good place to start is to get a free copy of your credit report, which you are able to do once per year. Keep in mind that not all of your debts will be listed on the report. Tax debts, medical bills, utility bills and some loans will not be included.

    You will also need to secure copies of:

    • Recent bank account statements
    • Recent retirement account or brokerage account statements
    • Proof of income, such as pay stubs for the last 6 months
    • Vehicle registrations
    • Tax returns for the past 2 years
    • Valuations or appraisals of any real estate you own; and
    • Any other documents relating to your assets, debts, or income.
  2. Get credit counseling. Credit counseling is required for every person filing for bankruptcy. You will need to complete the course within 6 months of when you file for bankruptcy. The course has to be taken through a credit counseling agency that is approved by the Department of Justice. Keep the certificate of completion that you receive after completing the course, as you will need to provide a copy when you file your bankruptcy case.
  3. Fill out and file the bankruptcy forms. Most people hire a bankruptcy attorney to help them file their case, but it’s not required. If you do hire an attorney, they will take care of this step (after you provide them with all of the documents you collected in step 1 above) and will keep you informed on what happens next until the case is finished.

What Types of Legal Issues Can Arise in a Bankruptcy?

The following legal issues can commonly arise in connection with a bankruptcy proceeding:

  • Not filing the correct documents. Many bankruptcy filers who don’t hire an attorney to help them don’t file all of the required bankruptcy documents. If this problem is not fixed, the court will dismiss the case.
  • Failing to protect property. Property exemptions are allowed in both Chapter 7 and Chapter 13 bankruptcy cases. Those filing bankruptcy without an attorney will oftentimes not list the proper exemption to keep an item of property which can be protected like a home, or property you particularly care about like a family heirloom.
  • Not taking the required credit counseling. As discussed in the previous section, credit counseling is required of all bankruptcy filers. If the completion certificate is not filed, the bankruptcy case can be dismissed by the court.
  • Objections to discharge. While unsecured debt can typically be discharged in a chapter 7 case, that is not always the case. If a credit card company objects to the discharge of what has been termed “binge debt” (generally purchases for big ticket luxury items) a judge may order that the debtor still must repay some or all of the amount owed.

Should I Hire a Bankruptcy Attorney if I Want to File for Bankruptcy More than Once?

While hiring an attorney adds another expense for people who are already strapped financially, it is usually well worth the money to hire a bankruptcy lawyer. An attorney will make sure everything is filled out and filed correctly, and can guide you throughout the entire bankruptcy process.