Repeat Bankruptcy Filings Benefits And Burdens

Two, Four, Six, Eight: Waiting Periods For Discharge In Subsequent Bankruptcy Cases

When clients ask “how many times can I file for bankruptcy” they usually want to know “how often can I receive a bankruptcy discharge?” They ask this question because they’ve found themselves in a financial bind years after receiving a discharge and want to know if they can find relief again.

The good news is that there is no statutory limit to the number of times a debtor can receive a bankruptcy discharge. There are timing issues, however, that would force a debtor to wait a number of years between discharges. The waiting periods vary from chapter to chapter of the Bankruptcy Code. The different chapters are:

  • Chapter 7 offers debtors the greatest relief available by completely discharging most pre-bankruptcy debts. For individuals, discharge usually happens 60 days following the debtor’s meeting with the trustee and creditors.
  • Chapter 13 is a bankruptcy case where a debtor makes a series of payments over 36 to 60 months to a Chapter 13 trustee for the benefit of unsecured creditors after the bankruptcy court confirms the debtor’s plan. The Chapter 13 trustee oversees the filing and plan process and ensures that the debtor is paying all net income to creditors for that time period. Chapter 13 is for individuals only and discharge is awarded only after completion of all payments due under the plan.
  • Chapter 11 is a procedure for businesses and individuals with more complex financial situations. In Chapter 11 the debtor manages their own assets, controls the proceedings in the case and files a plan of reorganization that contains their intended treatment of the various classes of their creditors. For individuals, like Chapter 13, discharge arises only after completion of all payments due under the plan.

There are different timing considerations when planning a repeat bankruptcy case based upon how the discharge was received in the earlier case. The following are the different alternatives:

Discharge Under Chapter 7 or Chapter 11 In Later Case

  • Eight Year Wait: Chapter 7 or Chapter 11 to Chapter 7 or  Chapter 11. If the prior discharge was entered in a Chapter 7 or Chapter 11 case individuals hoping to receive a discharge under Chapter 7 or Chapter 11 must wait eight years after the date of filing the earlier case before filing the new case.
  • Six Year Wait: Chapter 13 to Chapter 7 or Chapter 11.  Because Congress drafted the Bankruptcy Code to favor Chapter 13 repayments over Chapter 7 liquidations, a debtor can receive a Chapter 7 discharge more quickly after Chapter 13. As a result if the prior discharge was entered in a Chapter 13 case the debtor may file a subsequent Chapter 7 case and receive a discharge only six years after the date of filing the earlier case. Since a Chapter 13 case may require a 5 year (or 60 month) plan, a Chapter 7 discharge may therefore be awarded in a case filed only a year after entry of the Chapter 13 discharge order.
  • The discharge could be entered even sooner if in the prior chapter 13 case (i) the debtor paid all of their unsecured claims in full; or (ii) the debtor paid 70% of their unsecured claims and the plan was proposed by the debtor in good faith and was the debtor’s best effort.

These time frames are difficult and complex. Bankruptcy courts will almost always focus on the date of filing the subsequent case to determine the rights and obligations of the debtor. This is especially true if the debtor has already filed a bankruptcy case and received a discharge. Clients should understand that maximizing the likelihood of receiving a discharge is only one of the many reasons to delay filing a bankruptcy case in order to obtain the best possible result.

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