How Does a Prior Bankruptcy Filing Affect a Subsequent Bankruptcy Case?
Filing for bankruptcy is the most effective way for an individual to obtain relief from the burdens of debt. However, there are times when a person may find themselves back in debt as a result of unanticipated events. Medical problems, divorce, business failure or loss of employment may cause a person to slide back into overwhelming debt, thus necessitating another bankruptcy filing.
What effect does a prior bankruptcy have on a subsequent bankruptcy filing? While there is no statutory limit on the number of times that a person can file for bankruptcy, the Bankruptcy Code contains certain limitations on an ensuing bankruptcy case. These limitations can be broken down into three main topics, as detailed below.
Effect On the Right to a Discharge
The time that must pass before a debtor may receive a discharge in a subsequent bankruptcy filing is shown below:
1st Filing 2nd Filing
Chapter 7 Chapter 7 8 years
Chapter 7 Chapter 13 4 years
Chapter 13 Chapter 7 6 years*
Chapter 13 Chapter 13 2 years
*The six-year period does not apply if the prior Chapter 13 bankruptcy proceeding resulted in payment of 100% of unsecured claims; or resulted in the payment of at least 70 percent of unsecured claims, and the plan was proposed in good faith and was the debtor’s best effort.
Note:
The time periods run from the filing date of the prior bankruptcy petition (not, e.g., date of discharge or date prior case was closed).
The prior case must have ended with a discharge. If no discharge was granted, then the waiting periods do not apply.
Keep in mind that the above time periods operate to bar a discharge in the subsequent bankruptcy case. However, they do not prevent a debtor from filing another bankruptcy proceeding. For instance, a debtor may file a Chapter 13 bankruptcy for the purpose of curing a mortgage default, even if a prior bankruptcy filing makes the debtor ineligible for a discharge. So while a discharge cannot be granted, the succeeding Chapter 13 bankruptcy can still provide an effective means to stop a mortgage foreclosure.
Effect of a Prior Bankruptcy Filing on Eligibility to File for Bankruptcy
A person is not eligible to file for Chapter 7 or Chapter 13 bankruptcy if:
he or she had been a debtor in a bankruptcy case pending at any time in the preceding 180 days, and
the case was dismissed by the court for willful failure of the debtor to abide by orders of the court or to appear before the court in prosecution of the case, or
the debtor voluntarily dismissed the bankruptcy proceeding following a request by a creditor for relief from the automatic stay.
In reality, debtors who have had a prior Chapter 13 case dismissed in the preceding 180 days are rarely barred from filing again, unless there is a pattern of multiple filings for the purpose of stopping a foreclosure sale or thwarting creditors. However, see below for the effect of the prior dismissal(s) on the automatic stay.
Effect of a Prior Bankruptcy Filing on the Automatic Stay
Upon the filing of a bankruptcy petition, an automatic stay goes into effect. The stay acts to stop all attempts to collect most types of debts. However, prior bankruptcy filings will have the following effects on a subsequently filed bankruptcy case:
If a prior bankruptcy case was dismissed within the one year preceding the filing of the later bankruptcy case, the automatic stay terminates 30 days after filing. The court can extend the stay if it can be shown that the case was filed in good faith. This requires a motion to be brought in the bankruptcy court, which must be heard by the court within 30 days of the bankruptcy filing.
If two or more bankruptcy cases have been dismissed within the one year preceding the filing of the later bankruptcy case, the automatic stay does not go into effect. However, the debtor (or any party in interest) has 30 days from the filing of the petition to request an order to have the stay take effect, by demonstrating that the bankruptcy case was filed in good faith.
The Bankruptcy Code provides that the following elements will constitute a presumption that the later bankruptcy case was not filed in good faith:
More than one previous bankruptcy case was pending within the preceding one year period; or
A previous bankruptcy case was dismissed within the preceding one year period after the debtor failed to file or amend documents as required by the court without a substantial excuse; failed to provide adequate protection as ordered by the court or failed to perform the terms of a plan confirmed by the court; or
There has not been a substantial change in the financial affairs of the debtor since the dismissal of the most recent preceding bankruptcy case.
Although the foregoing are presumptions that a case was not filed in good faith, the presumptions may be rebutted if the debtor can show clear and convincing evidence to the contrary. In practice, motions to extend or implement the automatic stay will be granted if the debtor can show that there has been some change in circumstances since the prior filing, and that the current filing is being made in good faith.
A common scenario is where a debtor files a Chapter 13 bankruptcy pro se, i.e. without an attorney, for the purpose of stopping a foreclosure sale. Pro se Chapter 13 cases are almost always dismissed because the debtor is unable to comply with the complex rules and requirements of Chapter 13. If the debtor subsequently files a Chapter 13 case with an attorney, the court will usually grant the request to continue the automatic stay, assuming the debtor can show sufficient income to make the required Chapter 13 plan payments.
Call for a Free Consultation
If you have previously filed for bankruptcy, it is important that you consult with an experienced bankruptcy attorney to determine if you can file for bankruptcy again. Call (631) 673-9600, or fill out the contact form below, to schedule a free consultation. Andrew M. Doktofsky represents clients in Nassau County, Suffolk County, New York City, and surrounding areas.
Andrew M. Doktofsky P.C. is a debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code.