Can You File Bankruptcy Twice?
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Bankruptcy can be a difficult and complex process. But it may be necessary for those struggling to make ends meet.
You may think that you cannot declare bankruptcy more than once.
But there are cases when filing bankruptcy twice (or even many times) is not only possible but may be the best financial decision for those needing relief from their debt obligations.
In this post, we'll explore the following:
The different types of bankruptcies
The criteria for filing for bankruptcy multiple times
Whether it’s a good idea to file for bankruptcy a second time
The effects of filing for bankruptcy multiple times on your credit score
How filing for bankruptcy multiple times can affect your ability to buy a home
Alternatives to a second filing
Helpful tips on how to avoid bankruptcy in the future
TYPES OF BANKRUPTCIES
Bankruptcy can be confusing, especially when considering filing more than once.
First, let's look at how each bankruptcy type works. We will also look at their effects on an individual.
CHAPTER 7
Chapter 7 bankruptcy, also known as liquidation bankruptcy, is one of the most common forms of personal bankruptcy. It involves the sale of non-exempt assets to pay creditors.
Individuals generally use it with few or no assets. It can provide a quick debt relief solution by eliminating unsecured debts (such as credit card debts).
This type is for individuals having a hard time paying their debts. In a Chapter 7 filing, most or all your debts are discharged, and you receive protection from creditors and debt collectors.
Creditors may not seek payment from you during or after the bankruptcy process. During Chapter 7 bankruptcy proceedings, some of your assets may be sold to pay off secured debts such as mortgages and car loans.
After paying these debts, the debts owed to any remaining unsecured creditors (credit cards, medical bills, etc.) are included in the discharge of your debts without requiring any more payments.
Chapter 7 is often chosen by individuals with no other options for resolving their debts and needing a fresh financial start.
CHAPTER 11
Chapter 11 bankruptcy is a type of reorganization bankruptcy. Businesses or individuals with large amounts of debt often use it.
It allows the debtor to continue operating while under court protection and make payments toward their debts over time.
A reorganization plan and a repayment schedule will be created outlining how the debtor will manage their debts. Creditors may vote on the plan. The court then approves the plan.
Once approved, creditors must abide by the plan's repayment schedule. They cannot take further action against the debtor until it’s complete.
Chapter 11 bankruptcies can be more complex than other forms of individual bankruptcy. But they offer greater protection for those in need of financial restructuring.
Filing under Chapter 13 or Chapter 7 bankruptcies is usually quicker and easier for individuals. So, we’ll focus on chapters 7 and 13 in this post.
CHAPTER 13
Chapter 13 bankruptcy is a type of reorganization bankruptcy for individuals with regular income.
It allows debtors to keep their property and repay creditors over three to five years using the debtor's income.
During this time, creditors must abide by the bankruptcy payment plan. They cannot take any legal action against the debtor.
The bankruptcy court will review a debtor's financial situation. They will also approve a repayment plan that fits within their budget.
The repayment plan could include the following:
Reducing monthly payments
Eliminating certain debts or
Restructuring the debt amount
Compared to other types of bankruptcies, Chapter 13 can offer greater protection from creditors. It also allows debtors to keep their assets and work towards paying off debt.
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WHAT ARE THE MOST COMMON TYPES OF BANKRUPTCY FOR INDIVIDUALS?
Bankruptcy can be complex, but it may be the best way to start fresh and have financial freedom. For individuals, the two most common types of bankruptcy are Chapter 7 and Chapter 13.
GOOD FAITH REQUIREMENT
The good faith requirement is essential for those considering bankruptcy when filing for Chapter 13.
Good faith in bankruptcy is a legal concept that requires debtors to make their best effort to repay their debts and follow the rules of the bankruptcy system.
This means that you must be able to show your intention to cooperate and pay off your debts as much as possible under the circumstances.
When filing for Chapter 13, debtors must provide evidence of expected income. This proves their ability and intention to follow through with repayment plans.
Failing to meet this obligation could result in the dismissal of your case or other penalties, depending on the nature of the failure.
If you have any doubts about meeting the good faith requirement, it's best to speak with a qualified attorney.
They can help you understand what's expected of you under this provision.
BAD FAITH
Filing for bankruptcy with bad faith can have serious repercussions.
In the context of Chapter 13 bankruptcy, bad faith filing is when a debtor does not make a sincere effort to pay off their debts and fulfill the requirements of the bankruptcy system.
Examples of this behavior include:
Filing for bankruptcy with prospective creditors without the intention of repaying them
Hiding assets that should be part of the estate
Engaging in fraudulent activities
If it's determined that someone has filed for bankruptcy with bad faith, their petition could be denied or dismissed altogether.
They may also face criminal penalties for fraud or other offenses, depending on the severity of the circumstances.
So, those considering bankruptcy must take these matters seriously. They should do their best to follow all the rules and regulations imposed by the court to protect themselves from possible legal action.
CAN YOU FILE FOR BANKRUPTCY MORE THAN ONCE?
Under the bankruptcy code, yes, you can file for bankruptcy more than once. However, the process and rules differ depending on the type of bankruptcy.
The waiting period between filing multiple bankruptcies generally depends on the type of bankruptcy filed.
Under Chapter 7 bankruptcy, individuals can file more than once every eight years.
For Chapter 13 bankruptcy, individuals can only file for this type of bankruptcy every two years.
The wait time is four years if you want to file for chapter 13 after chapter 7.
If you want to file for Chapter 7 after previously filing for Chapter 13, the wait time is six years or less.
Below is a table that illustrates the filing wait periods:
It’s important to note that these waiting periods are in place to prevent debtors from repeatedly filing for bankruptcy without allowing enough time for their finances to get back on track between filings.
If certain debts remain unpaid or unaddressed from a prior filing, they could interfere with receiving approval on a future case.
Some debtors may find their options limited when filing for a second case. This could be due to prior liabilities or outstanding debts from a prior filing.
It's always a good idea to seek legal advice when considering filing for bankruptcy more than once.
If you can, speak to the attorney who represented you in your first case. They will have the details of your previous bankruptcy case, which will be helpful.
Related: How to Pay off Debt With Low Income
IS IT A GOOD IDEA FOR ME TO FILE FOR BANKRUPTCY A SECOND TIME?
The decision to file for a second bankruptcy is important and should not be taken lightly.
Filing for bankruptcy can relieve your overwhelming debt and help you get back on your financial feet.
But several considerations need to be considered before making the decision.
For example, you must consider if the waiting period previously discussed in this post has been met.
It would be best to consider any outstanding debts or liabilities that remain unpaid or unaddressed from a prior filing. These could interfere with receiving approval on a future case.
Determining what caused the financial difficulties after the first bankruptcy filing is also important.
If circumstances have changed since the first filing (such as job loss or medical bills), then filing again may be your best option.
But if it’s due to poor money management and lack of budgeting, you may want to explore other alternatives before filing again.
Related: 7 Money Management Tips for Beginners
WHEN IS FILING MULTIPLE BANKRUPTCIES CONSIDERED ABUSIVE?
Bankruptcy abuse prevention is essential. Filing multiple bankruptcies is abusive in certain situations.
If a debtor files multiple bankruptcies to delay or evade their creditors or attempt to defraud them, it could be deemed an abuse of the process. The court could then dismiss the bankruptcy filing.
Also, if a debtor files for bankruptcy with no intention of going through with the debt discharge, this, too, can be classified as an abuse of the bankruptcy system.
A debtor could file for bankruptcy multiple times without allowing enough time to begin rebuilding their financial health between filings. In that case, this could also be seen as an abuse of the system.
HOW DO MULTIPLE BANKRUPTCY FILINGS AFFECT MY CREDIT SCORE?
Multiple bankruptcy filings can have a significant impact on your credit score.
Bankruptcy is one of the most damaging items that can appear on a credit report, and filing more than once will only worsen matters.
Your credit score will drop drastically after filing for bankruptcy the first time. This decrease in your score will be larger if you file again.
Each bankruptcy filing may remain on your credit report for up to 10 years.
This means potential lenders will view you as a high-risk borrower for up to a decade following the filing(s) and may not be willing to loan you money or give you reasonable interest rates.
Having multiple bankruptcies on your record can also cause long-term complications when applying for financing. It could even cause issues with certain employment types involving handling money.
Considering all possible options and weighing the consequences before filing for bankruptcy a second (or third) time is crucial.
HOW LONG UNTIL I CAN GET A HOME LOAN?
Getting a home loan after filing for bankruptcy can be difficult. It should be taken into serious consideration before pursuing multiple bankruptcies.
Depending on the type of bankruptcy you file and the details of your case, it may take anywhere from 2 to 4 years before you will be eligible to apply for a traditional home loan.
During this period, it's essential to focus on rebuilding your credit and ensuring that none of the conditions set by the court are violated.
Also, even after the waiting period ends, you may still not qualify for a conventional home loan, depending on your credit score.
In such circumstances, you may need to look into securing a loan through a non-traditional lender who offers loans with less stringent requirements (though these often come at higher interest rates).
When considering filing multiple bankruptcies, there is much more than immediate relief at stake. The long-term effect it could have on your financial future and any property purchase plans should be considered.
WHAT ARE SOME ALTERNATIVES TO A SECOND FILING?
The good news is that there are several options you could consider before filing for bankruptcy for a second time.
These include:
Speak to an experienced financial consultant. Getting expert advice can help you evaluate your different options. It can also help you come up with a debt relief plan that's tailored to your situation. Many agencies have a free initial consultation.
Consider enrolling in a debt consolidation program. These programs provide an option for consolidating multiple debts into one manageable payment. This allows you to pay off your debts more efficiently while avoiding penalties and fees.
Negotiate with creditors and lenders. Asking them to reduce the money you owe or extend the payment timeline may prove beneficial without needing to file for bankruptcy again.
Utilize credit counseling services. These services provide advice on managing your finances better and improving your credit score over time.
Explore non-bankruptcy alternatives such as debt settlement or debt management plans.
A bankruptcy lawyer can help determine if these options are right for you. Look for an attorney with several years of experience filing bankruptcies when possible.
HOW CAN I AVOID BANKRUPTCY IN THE FUTURE?
Here are a few helpful tips to help you avoid future bankruptcy:
Set a budget and stick to it. Make sure you’re tracking income and expenses to stay within your means.
Pay off high-interest debt first, such as credit card debt, to reduce your total debt.
Create an emergency fund so you have money saved for unexpected expenses.
Avoid taking out unnecessary loans or using credit cards for purchases that can't be immediately paid back.
Invest in reliable stocks and bonds to supplement other sources of income.
Explore methods of making additional income, such as starting a side business or becoming a freelancer.
CONCLUSION
Filing more than one bankruptcy is a significant decision with serious long-term implications.
It's always best to speak with an experienced bankruptcy attorney and discuss all available options before deciding to file for bankruptcy multiple times.
This is important because every individual case is different. Many attorneys offer a free consultation.
You should also consider other alternatives, such as debt consolidation or credit counseling services. These can help you get out of financial trouble without pursuing multiple bankruptcies.
By taking your time and considering all the pros and cons, you will be better positioned to make an informed decision about your future finances.