If you have filed a bankruptcy in the past, can you file again?

Successive Bankruptcy Filings

The rules regarding successive bankruptcy filings is actually quite simple.

Chapter 7 –> Chapter 7

If you have filed a Chapter 7 case in which you received a discharge, you cannot file another Chapter 7 case until 8 years have passed since the date that you filed the first case.

  • For instance, if you filed a Chapter 7 case on April 1, 2004 and you received a discharge, you would be ineligible to file another Chapter 7 case until April 2, 2012.

Chapter 7 –> Chapter 13

If you have filed a Chapter 7 case in which you received a discharge, you cannot obtain a discharge in a Chapter 13 case that is filed within 4 years after the Chapter 7 case was filed.

  • For instance, if you filed a Chapter 7 case on April 1, 2004 and you received a discharge, you could not receive a discharge in a Chapter 13 case unless it was filed after April 4, 2008
  • However, there are many benefits that can be had from a Chapter 13 other than the discharge. For instance, if you have lots of unsecured debt and you are behind in arrears on your home, you may be able to file a Chapter 7 bankruptcy to wipe out all of your unsecured debt, and then file a Chapter 13 to deal with the arrears. These are commonly called “Chapter 20 cases” (13 + 7 = 20). This is just one example of how you can use the flexibility of a Chapter 13 plan to restructure your debts.

What is “Lien Stripping”?

Lien-stripping is the process of bifurcating (splitting) a secured claim into two separate claims, the secured portion and the unsecured portion. For instance, you have a home that is worth $500,000 and you have a first mortgage balance of $300,000 and a second mortgage balance of $300,000. Since the house is only worth $500,000 and the second mortgage is partially secured in the amount of $200,000 and partially unsecured in the amount of $100,000, the unsecured portion would be “stripped off” and treated as a general unsecured debt. Through a Chapter 13 you could split these claims into these two categories and you would be required to pay the secured portion the $500,000, but the unsecured portion could be paid anywhere between 0-100% depending on many other factors with the difference being discharged at the conclusion of your plan.

A similar process can be done with vehicles called a “cram down”.

 

What do all the different Chapters mean?

Bankruptcy Law as a whole is a combination of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, the Federal Rules of Civil Procedure, State Law, Federal Law, and Case Law developed in the courts.  The explanations below are just a brief overview; every chapter of the Bankruptcy Code is extremely complex. It is advisable that no matter how simple your situation may seem, the bankruptcy code is full of traps and you should hire a competent attorney that will make sure that you receive the best possible outcome.

Chapter 7: Liquidation
This is by far the most common Chapter to file under. Debtors who file under Chapter 7 do not have to pay back any of their general unsecured debt from their future earnings, but at the same time put themselves at risk of the trustee liquidating their non-exempt property to pay off creditors. Individuals, married couples, and businesses that want to cease operating may file under Chapter 7. However, since 2005 Congress has made the requirements of eligibility more strict and some debtors who would like to file under Chapter 7 are forced into Chapter 11 or 13. A run-of-the-mill Chapter 7 bankruptcy lasts about 4-5 months from the time the case is filed to when you receive your discharge and the case is closed.

Chapter 9: Municipalities
This Chapter is reserved for cities, towns, counties, and other municipal entities who have become insolvent and need the assistance of restructuring through a Chapter 9 Plan. Notable cases include Orange County, San Bernardino County, Desert Hot Springs, Stockton, Mammoth Lakes, and most recently Detroit, MI.

Chapter 11: Restructure/Reorganize
This chapter is reserved for business that want to continue operating and are in need of restructuring their debts and for individuals who want to retain their property and make a plan of repayment but are not eligible for Chapter 13 because they have too much debt.

Chapter 12 – Farmers/Fisherman
This is a very uncommon form of bankruptcy relief (in 2014 there was not a single Chapter 12 filed in the Riverside District, compared to 13,416 Chapter 7 cases that were filed). It is similar to a Chapter 13 with the exception that instead off making monthly payments, the debtor makes annual payments. The reasoning behind Chapter 12 is that farmers and fisherman to not receive stable monthly income, but rather their income fluctuates with the seasons, and other uncontrollable factors. Chapter 12 debtors still pay back some of their debt like in a Chapter 11 or 13, but their payments are not even monthly payments and fluctuate with their income.

Chapter 13: Repayment Plan
This Chapter is the second most common type of bankruptcy. Chapter 13 is completely voluntary (interesting fact: the reason that Chapter 7s cannot be voluntarily dismissed and Chapter 13s can is due to the 13th Amendment that prohibits slavery and involuntary servitude. If you can’t dismiss a Chapter 13, that means that you would be forced to continue working). Some of the reasons that people file under Chapter 13 are: they have too much income to be eligible for Chapter 7, they have non-exempt property that they want to retain, they have fallen behind on their payments of secured debts (typically a home or car) and want to keep the property, or a variety of other reasons. In a Chapter 13, you will need to create a feasible repayment plan and make monthly payments over the course of 3 to 5 years.