How Often Can You File Bankruptcy & How Will Repeated Bankruptcies Affect You?
There are circumstances in life when a person suffering from financial hardship may have no other choice but to file for bankruptcy. Personal debt is on the rise: U.S. household debt reached a record of $14 trillion in the fourth quarter of 2019, with an increase in delinquencies (90 days late) of credit card, student loan, and auto loan debts. Filing for bankruptcy may give overwhelmed borrowers the opportunity to reduce or restructure their debts for a better chance of paying them off and getting their life back on track.
But what happens when a person who finally got their finances in order after a previous bankruptcy is diagnosed with a serious illness and is facing insurmountable medical bills? Can the person file for bankruptcy again? Debtors may be able to file for bankruptcy again, but there are varying rules and conditions on how.
Can I File Bankruptcy Again?
You can file bankruptcy again, but your eligibility to file for bankruptcy will differ depending on the chapter you used and whether you had any debt discharged. For those wondering why a second bankruptcy filing may be beneficial, consider this: even if you don’t receive a discharge, bankruptcy could buy you more time to pay off your debts.
For example, if you have a large tax debt and wage garnishment or an IRS repayment plan may cause your family hardship, you may be able to get more favorable terms, such as a five-year repayment plan, from a chapter 13 bankruptcy. It’s advisable to seek legal counsel to weigh the pros and cons of filing a second bankruptcy.
If You’re Filing Under the Same Chapter …
If you’re planning on filing for bankruptcy under the same chapter as the last time, there are time limits. File too soon and the court may deny your petition. You’ll have to wait to file:
- Chapter 7: Eight years after the filing date of your previous chapter 7 bankruptcy;
- Chapter 13: Two years after the filing date of your previous chapter 13 bankruptcy.
If You’re Filing Under a Different Chapter …
If you have a previous chapter 7 discharge and would like to file a chapter 13 to restructure your debts (or vice versa) the waiting times are:
- Filing a chapter 7 after a previous chapter 13: Six years after the first filing;
- Filing a chapter 13 after a previous chapter 7: Four years after the first filing.
You may not have to wait six years after a chapter 13 to request a chapter 7 discharge if you completed the terms of your bankruptcy. There is no mandatory waiting period in the following situations:
- If you repaid your creditors in full as agreed to in the original bankruptcy terms;
- If you paid at least 70% of your debt using your best effort and the plan proposed was in good faith.
Bankruptcies Without Discharges
If you did not receive a discharge in a previous filing or the court dismissed it, you may refile for bankruptcy. You don’t have to wait as long as six years to refile if the initial petition did not work. To refile after a previous failed bankruptcy attempt, you’ll only need to wait 180 days.
There are exceptions to the guideline — you may not refile in six months if the court found you were abusing the system by repeatedly filing for bankruptcy to delay paying your creditors or if you willfully failed to follow the court’s orders in the original case.
Is Bankruptcy Right for You?
Deciding on whether a first or second bankruptcy is right for you comes with many factors to consider and should not be taken lightly. Not all your debt may be discharged in a bankruptcy — alimony or student loans are generally difficult to have dismissed, though not impossible in the right situation. It may be best to evaluate your chances of getting your debts discharged by discussing your options with a bankruptcy attorney before proceeding.
The bankruptcy process can take several months and can be expensive. You’ll need to pay $425 in administrative fees and complaint filing. Plus, there are a variety of other fees, including copies, motions, and attorney’s fees. There may be alternative ways to deal with your debt that could save you time and money.
How Bad Is It to File Bankruptcy Twice (or More)?
If you’re filling for a second bankruptcy, you already know the cost and time it takes to go through the process. You may lose your non-exempt assets, which may include your home, vehicle, and intellectual rights. In addition, a bankruptcy will negatively impact your credit and remain on your credit report for seven years.
Alternatives to Bankruptcy
There are alternatives to bankruptcy that may be less costly to your budget — and your credit. Consider contacting creditors to renegotiate your payment terms or to request payment deferment so you can buy yourself some time to get back on your feet. If you’re struggling with student loan debt, there are loan forgiveness programs available that may reduce a portion or all of your student loans. They include:
- Public Service Loan Forgiveness: For full-time employees of local, state, tribal, or federal government, or a non-profit organization. To qualify for PSLF, you must have Direct Loans, and make 120 qualifying payments under an income-driven repayment plan.
- Income-Driven Repayment Plan: An IDRP establishes an affordable monthly payment for your Direct Loans. If you pay the amount for 20 to 25 years, the remaining balance will be forgiven.
Tips for Having Your Debt Discharged
- Choose the right type of bankruptcy for you: Chapter 7 is best for people with limited income seeking to discharge (remove) their debt. Chapter 13 is known as a “wage earner’s plan” because it’s meant to help people with a regular income set up a reasonable repayment plan.
- Keep a detailed inventory of your finances: You’ll need to present your financial statements to the court to back up your claim.
- Comply with any requirements: You’ll need to complete mandatory credit counseling, plus whatever other requests your state court may have.
- Seek legal assistance: A lawyer experienced in debt collection or bankruptcy can provide you with options and guide you through the process.
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