For those uninitiated in bankruptcy, debt, and legal terms, bankruptcy refers to “a clean restart.” Bankruptcy records are a simple and highly effective way for people to combat their expansive debts. Those overwhelmed by high debt figures often turn to bankruptcy for last-effort assistance.
However, simply filing for and receiving a bankruptcy ruling isn’t enough in some cases. A person may need to file for bankruptcy multiple times over their life because there are different ways to file, and, as circumstances change, the filing may also need to change. Bankruptcy records are also attached to your name and social security number; this attachment can be important when buying a house, car, or business. The subsequent sections outline all you need to know about filing for bankruptcy.
Filing Bankruptcy Cases Under Different Chapters
There are two primary choices a person has when they choose to file for bankruptcy. One option is going with a Chapter 7 filing; this option allows the liquidation of assets to recoup any necessary money. The other option is to file a Chapter 13 report; this option features a repayment plan. In both cases, bankruptcy will affect the credit score of the person who filed, so picking the right one is vital.
Luckily, a person can file multiple bankruptcy forms and change which Chapter they want to use. However, this flexibility comes at a cost. While the owner can amend their filing, they must wait a certain amount of time before filing again.
- If a Chapter 7 filing becomes a Chapter 13, there is a waiting period of four years. However, some aspects can lower this wait time, like paying back everything owed in full.
- If a Chapter 13 filing is becoming a Chapter 7, there is a waiting time of up to six years. However, paying back the debt in full can lower this waiting period. Sometimes, debtors must pay only 60% to waive the wait.
Filing Bankruptcy Cases Under the Same Chapter
It’s also possible to refile for the same Chapter if the first time went well. Both Chapters have many pros and cons; consider switching the filing after obtaining legal advice from a professional.
For example, filing a Chapter 7 bankruptcy will allow you to liquidate assets to pay off the delinquent debts. Usually, a person will only pick this option if they own few assets and typically have little to protect. This process can take three to six months, but hopefully, by the end, the debtor will have fulfilled the debts.
On the other hand, Chapter 13 bankruptcy restructures debts rather than discharging or removing them. This is the top choice for those with houses and assets they need to protect. Choosing this Chapter means accepting the court-approved debt repayment plan option when it is provided.
- There is a waiting period of eight years to file for Chapter 7 bankruptcy and then file again. It is believed that this is enough time to correct any issues regarding the prior debt.
- There is a waiting period of two years to file for Chapter 13 bankruptcy and then file again. While this is the lowest wait time for all those involved, it is also the most personalized.
Filing for Bankruptcy Without a Discharge
Regarding bankruptcy, a discharge refers to the release of obligations owed between a debtor and a creditor. It completely releases all legal requirements to pay the specified portion. Entire debt balances cannot be discharged, but a significant portion may be.
Unfortunately, some side effects come with having a portion of your debt discharged. Most importantly, there will be no way to remove bankruptcy from your credit; that will result in a bankruptcy leaning on your credit score for seven to ten years.
Further, certain debts cannot be discharged, so filing for bankruptcy with these debts is necessarily paid back:
- Mortgages, car loans, and other “secured” loans where you keep property or services.
- Taxes, support obligations, and other “priority” debts, like court costs or ordered fines.
- Debts created by fraud, theft, forgery, or other criminal actions.
- All student loans, even if they are consolidated into one account.
Difficulties with Repeat Bankruptcy Filings
All the seeming benefits of filing for bankruptcy may raise a familiar question; how many times can you file bankruptcy? The easy answer is as many times as you want. The realistic answer is a bit more complicated if you rely on aspects of the process.
For example, you can file a Chapter 7 bankruptcy, receive it, then have a portion of that debt discharged. If you return to file for bankruptcy again for the same situation, you might not receive a discharge again due to not having enough time passed for you to be eligible. The easiest way to deal with the timing logistics is by speaking with professionals.
When Are Multiple Bankruptcy Filings Abusive?
It may seem like there are some straightforward and easy ways to disrupt and take advantage of the bankruptcy system. Why doesn't everyone take out loans, file for bankruptcy, get a discharge, pay half of the money back, and keep the rest as profit? Why can't someone take out bankruptcy filings to evade creditors and collectors? Others could use the process to stall legal proceedings or foreclosures too.
The three examples above are considered abusive bankruptcy filing; it is highly frowned upon in the legal and debt systems. People do not choose this path because it results in a fight with the court itself. That is not the case; someone can win if they are charged with abuse of the system. Further, the courts will not accept future bankruptcy filings, and you may be blacklisted from loan companies.
Only File for Bankruptcy as a Last Resort
It’s important to avoid bankruptcy whenever possible. It destroys your credit and, in some cases, takes property from your home. Ensure that you’ve exhausted all your other debt repayment options: forbearance, debt negotiation, management, and consolidation. The other option always available is to increase your income; even a little bit can help.
