Bankruptcy courts permit people, businesses, and other organizations to file for bankruptcy when they are unable to pay current bills under their current circumstances. The Bankruptcy Code is the set of laws permitting such filings.
The bankruptcy court presides over bankruptcy proceedings. The bankruptcy court appoints a trustee to review the filings and attempt to recover that which is permissible for creditors in a liquidation proceeding. If all goes as planned, a person will pull themselves out of debt and begin rebuilding his or her credit. This may be done through extinguishing current debt or restructuring in order to repay existing debt.
A Second Bankruptcy Filing
Unfortunately, sometimes economic circumstances may again take a downward turn years later. Therefore, it is important to understand the limitations on filing a second bankruptcy petition years after the first filing. If a person has already filed a bankruptcy petition, the court will not permit filing again until a certain amount of time has passed.
The court will deny a discharge in a later chapter 7 case if the debtor received a discharge under chapter 7 or chapter 11 in a case filed within eight years before the second petition is filed.
The court will also deny a chapter 7 discharge if the debtor previously received a discharge in a chapter 12 or chapter 13 case filed within six years before the date of the filing of the second case unless:
- the debtor paid all “allowed unsecured” claims in the earlier case in full, or
- the debtor made payments under the plan in the earlier case totaling at least 70 percent of the allowed unsecured claims and the debtor’s plan was proposed in good faith and the payments represented the debtor’s best effort.
A debtor is ineligible for discharge under chapter 13 if he or she received a prior discharge in a chapter 7, 11, or 12 case filed four years before the current case or in a chapter 13 case filed two years before the current case.
A Second Filing is an Important Consideration Before a First Filing
Therefore, an important consideration of any bankruptcy filing should be the effect of filing on your future ability to file. Of course, the purpose of bankruptcy is to provide an avenue under which a person or entity can either have debts extinguished and begin fresh or restructure so that existing debts can be reasonably paid. If all goes well, the person or business entity will not need to file again.
This is obviously the hope and purpose of the bankruptcy courts. However, economic circumstances of individuals and the entire United States can change drastically over the course of four to seven years. No one can foresee further economic downturn with complete accuracy. Therefore, it is important to remember the above time limitations on filing for bankruptcy a second time in making your determination about what to do now.