A discharge of bankruptcy debts is the elimination of debts.
The “debtor” is the person or entity owing a debt. The “creditor” is the person or entity to whom the debt is owed.
Dischargeable and Nondischargeable Debts
Only certain debts are dischargeable, or may be eliminated. Tax debt, student loans, and court ordered child support payments are not dischargeable. Credit card debt is dischargeable.
Chapter 7 Liquidation May Eliminate Debt
Through chapter 7 bankruptcy proceedings dischargeable debts are essentially forgiven and no longer need to be repaid. Certain assets will be liquidated, however, in order to repay creditors before the remainder of debt is discharged.
Chapter 7 bankruptcy is often referred to as liquidation bankruptcy. Chapter 11 bankruptcy and chapter 13 bankruptcy are other common types of bankruptcy filings. Chapter 12 bankruptcy filings are also somewhat common, although much less so than chapter 7, chapter 11, and chapter 13 filings.
There are time limitations on who, or when, a person may file for bankruptcy. Additionally, chapter 7 bankruptcy liquidation will not be best for everyone even under the circumstances where it is permitted.
When Are Second Bankruptcy Filings Not Permitted?
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:
(1) the debtor paid all “allowed unsecured” claims in the earlier case in full, or
(2) 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.
Considerations Before Filing Bankruptcy
Therefore, in addition to determining if and when bankruptcy is the right action for you or your business, which type of bankruptcy is permitted or provides the best avenue for you or your business, you must also consider when to file bankruptcy. In determining when to file bankruptcy you will want to keep in mind the above limitations on a second bankruptcy filing.