Can You File Chapter 7 Twice and Get a Discharge?

Bankruptcy provides a legal pathway for individuals to obtain relief from overwhelming debt. This process, governed by federal law, helps debtors manage financial distress by eliminating obligations or establishing repayment plans. While bankruptcy serves as a fresh start, questions often arise regarding its repeated use. Understanding the rules and limitations for multiple filings is important. The system aims to provide relief while preventing abuse, leading to specific regulations for subsequent filings.

Eligibility for Discharge in a Subsequent Chapter 7 Filing

A discharge releases a debtor from personal liability for certain debts. While there is no limit to how many times an individual can file for bankruptcy, receiving a discharge in a subsequent Chapter 7 case is subject to strict federal waiting periods. These periods ensure the bankruptcy system is used responsibly.

If a debtor previously received a discharge in a Chapter 7 case, they generally must wait eight years from the filing date of the prior Chapter 7 case to receive another Chapter 7 discharge. This is often referred to as the “8-year rule” and is outlined in 11 U.S.C. § 727. Even if a debtor files a new Chapter 7 case before eight years, they will not be granted a discharge. The clock starts ticking from the date the previous Chapter 7 petition was filed, not the date the discharge was granted.

If a debtor previously received a discharge under Chapter 13, the waiting period for a subsequent Chapter 7 discharge is typically six years from the Chapter 13 filing date. This rule acknowledges the different nature of Chapter 13, which involves a repayment plan rather than direct liquidation.

The six-year waiting period from a Chapter 13 filing to a Chapter 7 discharge may be shortened under specific circumstances. The waiting period can be waived if the debtor paid 100% of the allowed unsecured claims in their previous Chapter 13 plan. It can also be shortened if the debtor paid at least 70% of the allowed unsecured claims in the previous Chapter 13 plan. For this exception, the Chapter 13 plan must have been proposed in good faith, and the debtor must have exerted their best effort to make payments.

It is important to differentiate between filing a Chapter 7 case and receiving a discharge. A debtor may file a Chapter 7 petition even if the waiting period for a discharge has not elapsed. However, filing does not automatically guarantee a discharge of debts. The court will review the debtor’s eligibility for discharge based on these statutory waiting periods.

General Requirements for Any Chapter 7 Filing

All individuals seeking Chapter 7 bankruptcy must satisfy universal requirements, whether it is a first or subsequent filing. These prerequisites are fundamental to the bankruptcy process and ensure the system’s integrity.

A primary requirement is passing the means test, outlined in 11 U.S.C. § 707. This test determines if an individual’s income is low enough to qualify for Chapter 7 by comparing it to the median income for a household of the same size in their state. If the debtor’s income exceeds the median, additional calculations assess their ability to repay debts, potentially leading to a presumption of abuse.

Before filing for Chapter 7, debtors must complete a credit counseling course from an approved agency, as specified in 11 U.S.C. § 109. This course must be completed within 180 days prior to filing. Its purpose is to explore alternatives to bankruptcy and ensure debtors understand the implications of their decision.

Following the filing, and before a discharge can be granted, debtors must also complete a debtor education course. This post-filing requirement focuses on personal financial management and budgeting. Completing both the pre-filing credit counseling and the post-filing debtor education courses is a non-negotiable step for obtaining a Chapter 7 discharge.

The Automatic Stay and Its Application in Subsequent Filings

The automatic stay, established under 11 U.S.C. § 362, is a fundamental bankruptcy protection. It immediately halts most collection actions against the debtor and their property upon filing a bankruptcy petition. This injunction prevents creditors from pursuing lawsuits, foreclosures, repossessions, and wage garnishments. The stay provides debtors with immediate relief and a temporary reprieve from collection efforts.

While powerful, the automatic stay’s application and duration can be significantly affected in subsequent bankruptcy filings, particularly if previous cases were dismissed within a certain timeframe. The law includes provisions to prevent abuse of the automatic stay by repeat filers who might use it merely to delay creditors.

If a debtor had one prior bankruptcy case dismissed within the year preceding the current filing, the automatic stay in the new case is limited to 30 days. The stay will automatically terminate after 30 days unless the debtor files a motion with the court and demonstrates that the new filing is in good faith.

Restrictions on the automatic stay become more stringent if a debtor has had two or more prior bankruptcy cases dismissed within the preceding year. In such situations, the automatic stay may not go into effect at all upon filing. For the stay to become effective, the debtor must proactively request a court order, proving to the court that the current filing is made in good faith and not an attempt to delay creditors.

Even when a discharge of debts may not be available due to statutory waiting periods, the automatic stay can still provide temporary protection. However, its effectiveness and duration are heavily scrutinized in repeat filings. Creditors may seek relief from the stay more readily in subsequent cases, arguing that the debtor is exploiting the system.

Considering Chapter 13 as an Alternative

When a Chapter 7 discharge is not feasible due to waiting periods or other qualification issues, Chapter 13 bankruptcy offers a viable alternative for debt relief. Chapter 13, often referred to as a “wage earner’s plan,” fundamentally differs from Chapter 7. While Chapter 7 involves the liquidation of non-exempt assets to pay creditors and provides a fresh start by discharging eligible debts, Chapter 13 focuses on reorganization, allowing debtors to repay debts through a court-approved plan.

Under Chapter 13, debtors propose a repayment plan to pay all or a portion of their debts over a period, typically three to five years. The plan’s duration is usually three years if the debtor’s income is below the state’s median income for their household size, and five years if it is above. This structured repayment allows debtors to retain their assets, as long as they adhere to the plan’s terms.

Chapter 13 can serve as an effective alternative if a debtor does not qualify for Chapter 7 under the means test, or if the waiting period for a Chapter 7 discharge has not yet passed. For instance, if a debtor received a Chapter 7 discharge recently and needs immediate debt relief but cannot obtain another Chapter 7 discharge, Chapter 13 allows for a new filing without the same discharge waiting periods. This enables the debtor to address current financial challenges through a repayment scheme.

Chapter 13 also offers a “super discharge,” which can discharge certain types of debts not dischargeable in Chapter 7. These may include debts for willful injury to property, certain tax debts, and debts incurred to pay non-dischargeable tax obligations. This broader discharge scope can be a significant advantage for debtors with a mix of dischargeable and non-dischargeable debts.

Chapter 13 can be particularly beneficial for debtors who want to save their homes from foreclosure or prevent vehicle repossessions. The repayment plan allows debtors to catch up on past-due mortgage or car payments over time, while the automatic stay protects them from collection actions. This provides an opportunity to cure defaults and preserve valuable assets, a protection not directly available in Chapter 7 liquidation.