Can You Go Bankrupt Twice? The Rules on Repeat Filings

Filing for bankruptcy can offer a path toward a fresh start. Individuals who have previously sought this relief often wonder if they can file for bankruptcy more than once. The answer is yes, but receiving a new debt discharge is subject to specific rules and limitations established by federal bankruptcy law. These regulations balance providing relief to debtors with preventing abuse of the system.

Understanding Bankruptcy Discharge

A bankruptcy discharge is a court order that releases a debtor from personal liability for certain debts. This legal action eliminates the debtor’s obligation to pay these debts, prohibiting creditors from taking further collection actions. The primary purpose of a discharge is to provide a “fresh start” by relieving the debtor of legal responsibility for qualifying financial obligations.

Not all debts are eligible for discharge. Federal law specifies categories of non-dischargeable debts, such as most student loans, certain tax obligations, domestic support obligations like alimony and child support, and debts arising from fraud or willful and malicious injury. Unsecured debts like credit card balances and medical bills are generally dischargeable.

The timing of a discharge varies by bankruptcy type. In a Chapter 7 liquidation case, discharge usually occurs about four months after the petition is filed. For Chapter 13 cases, which involve a repayment plan, discharge is granted after the debtor completes all payments under their plan, which typically spans three to five years.

Waiting Periods for Subsequent Discharges

Individuals who have previously received a bankruptcy discharge must observe specific waiting periods before they can obtain another discharge in a subsequent bankruptcy case. These periods are measured from the filing date of the earlier case to the filing date of the new case. The waiting period depends on the combination of bankruptcy chapters involved in both the prior and current filings.

If a Chapter 7 discharge was received, an eight-year waiting period applies before filing Chapter 7 again for a new discharge. For those who filed Chapter 13, a two-year waiting period is required before filing Chapter 13 again.

When transitioning between different bankruptcy chapters, different waiting periods apply. If a debtor received a Chapter 7 discharge and then seeks to file for Chapter 13, they must wait four years from the Chapter 7 filing date to the Chapter 13 filing date to be eligible for a Chapter 13 discharge. If the prior discharge was under Chapter 13 and the debtor seeks a Chapter 7 discharge, a six-year waiting period applies from the Chapter 13 filing date to the Chapter 7 filing date.

There are exceptions to the six-year waiting period for a Chapter 13 to Chapter 7 discharge. This period may be waived if the debtor’s Chapter 13 plan fully paid 100% of all unsecured claims. Alternatively, the waiting period can also be waived if the Chapter 13 plan paid at least 70% of the unsecured claims, and the plan was proposed in good faith and represented the debtor’s best effort to repay creditors.

Consequences of Ineligible Filings

While there is no legal limit to how many times an individual can file for bankruptcy, significant consequences arise if a debtor files a new case before the statutory waiting period for a discharge has expired. A debtor will not be eligible to receive a discharge for any debts in that subsequent filing. This means the debtor remains personally liable for the debts that would ordinarily be eliminated through the discharge process.

The lack of a discharge means that the permanent discharge injunction, which prevents creditors from attempting to collect discharged debts, will not apply to the debts included in the premature filing. Creditors retain their rights to pursue collection actions for these debts, potentially including lawsuits, wage garnishments, or property liens. This can negate the primary benefit of filing for bankruptcy, leaving the debtor in a similar or worse financial position than before the filing.

Filing for bankruptcy too soon can lead to complications. The court may view such a filing as an abuse of the bankruptcy system, potentially leading to the dismissal of the case. A dismissal, especially if it is “with prejudice,” can impose further restrictions on future filings or even limit the types of debts that can be discharged in any subsequent bankruptcy.

Repeat filings within a short timeframe also affect the automatic stay, which temporarily halts most collection activities upon filing. The automatic stay may be limited or entirely unavailable for debtors who have had multiple cases dismissed within the preceding year.

For instance, if a debtor has had one case dismissed in the past year, the automatic stay in a new filing may only last for 30 days unless extended by the court. If two or more cases were dismissed in the past year, the automatic stay might not go into effect at all, leaving the debtor immediately exposed to creditor actions.