By Columbia – Lexington Bankruptcy Attorney Lex Rogerson
The great majority of my clients file bankruptcy a single time. But the persistently weak economy and the inherent financial risks of certain livelihoods mean that some of our Columbia neighbors need protection from their creditors more than once during a lifetime.
Getting another discharge
Congress has decided people shouldn’t be able to cancel their debts by filing bankruptcy cases one after another. So the code disqualifies debtors from receiving a discharge for certain periods after they filed their prior cases. The length of time depends on the type of bankruptcy that was filed before and the type that is proposed now.
Let’s say you now want to file Chapter 7. If you previously filed Chapter 7, you must wait until eight years after that prior case was filed. However, if you previously filed chapter 13, completed the plan payments, and received a discharge, the waiting period is six years (unless your unsecured creditors received at least 70% of their claims). Filing before the applicable period has run means your debts will not be discharged in the current case. In all but the rarest situations, this means filing would accomplish nothing.
The bar periods are shorter for Chapter 13. You can file Chapter 13 four years after a prior Chapter 7 or two years after a prior Chapter 13 in which you were discharged. The last restriction is fairly meaningless, because it normally takes at least 3 years to complete the prior Chapter 13 case and receive a discharge.
In each of these situations, the period of disqualification is counted from date of filing to date of filing. If you filed Chapter 7 on January 1, 2006, and received a discharge on April 15, 2006, you would be eligible to file another Chapter 7 case on January 1, 2014. The date of discharge in the prior case doesn’t figure in.
What if the prior case was dismissed?
Different policy considerations apply here. The problem with filing bankruptcy after a prior case fails is that it looks like the debtor is not really trying to complete his case and is just using the bankruptcy procedure to tie up his creditors with red tape. This issue arises mostly in Chapter 13 cases because they are often filed to prevent or stop a foreclosure and almost always last several years.
If you file bankruptcy within a year after a prior case is dismissed, the courts tend to presume you’re filing the second case in bad faith. So the automatic stay, which protects debtors from creditors while they’re in bankruptcy, expires thirty days after the second filing. To prevent that result — that is, to keep creditors from suing, repossessing, foreclosing, etc. — your lawyer must move to extend the stay. Then, within those 30 days, you’ll have to show at a hearing that you are proceeding in good faith and can probably succeed in the new case. This typically means showing that something has changed (usually increased income or decreased expenses) and that the circumstances that caused the prior case to fail won’t doom the current case.
Unlike the method used when the prior case was completed, the year here is counted from the dismissal of the prior case to the filing of the new case.
You won’t find a Chapter 20 in the Bankruptcy Code. It’s an informal lawyer’s term for a Chapter 7 and a Chapter 13 in succession, usually in that order (7 + 13 = 20).
As we mentioned before, filing Chapter 13 less than four years after a prior Chapter 7 means you can’t get a discharge in the later case. But Chapter 13 can be useful for purposes other than discharging debts — for example, catching up with a mortgage, or paying off past-due taxes or child support over several years. So the debtor files Chapter 7 to discharge unsecured debts and then follows up with a no-discharge Chapter 13 case to take care of other problems like those. It’s not a frequent practice, but nearly every experienced debtor’s attorney has done it on occasion, and most courts say the strategy is legal.
Chapter 20’s give rise to special issues. For example, in early 2013, the Fourth Circuit (a federal court that hears appeals from states including South Carolina) held a debtor can strip off a fully unsecured second mortgage in a Chapter 13 case filed shortly after a Chapter 7 discharge.
The rules on repeat filings can be complicated. This article just covers the basics. If you’re thinking bankruptcy might again be a good idea, don’t assume your prior case disqualifies you from filing now. Do get advice from an bankruptcy lawyer who’s experienced in applying the re-filing rules and can discuss what you should do if you must delay filing.