Some say the third time’s a charm, while others say bad things come in threes. Whatever side of the old sayings you tend towards, it is an unfortunate reality of personal finance that some people end up in arrears again after their second chance.
What happens after the second chance? Can debtors get a third? A fourth? Is there any limit to how many times a person can declare bankruptcy? Find out in this article from bankruptcy attorney David M. Offen, Esq.
David M. Offen, Esq. has spent over 20 years as a bankruptcy lawyer in Philadelphia. His firm has helped more than 10,000 clients through the bankruptcy process. Call (215) 625-9600 to schedule a consultation.
What does the law say about the number of times you can declare bankruptcy?
Surprisingly, there is no statutory limit on how many times a person can declare bankruptcy in their lifetime. There are limits on how frequently debt can be discharged, and abuse of the system could definitely land the filer with legal difficulties.
Bankruptcies in all states are governed by Federal law, specifically United States Code Title 11. Encompassing 238 pages as of the latest revisions, entire chapters of this legislation are dedicated to a single type of bankruptcy and its particular rules and regulations. This is why an adjustment of debts of an individual with regular income is commonly called a Chapter 13 bankruptcy, and why liquidation of assets to settle debts is called a Chapter 7 bankruptcy.
Filing Bankruptcy vs. Discharging Debts
Someone not familiar with bankruptcy law could be forgiven for looking at “bankruptcy” as a singular process. There exists an important difference between filing for bankruptcy and actually receiving a bankruptcy discharge by either filing a Chapter 7 bankruptcy (straight bankruptcy) or by Chapter 13, where your debts are resolved through a payment plan.
Unlimited Filings—Within Reason
Let’s start with a person who has never filed bankruptcy before and tries to file without the help of a bankruptcy lawyer. He or she files their papers at the county court, the automatic stay takes effect, and our filer goes to their first court date. Because of an obscure procedural technicality that this hypothetical self-represented plaintiff did not understand, the judge dismisses the bankruptcy case.
If the person has the wits to realize they’re in over their head, they could contact an attorney at this point, and immediately file a second Chapter 13 claim with all their papers in order and a lawyer representing their interests before the judge.
Alternatively, there is the ill-advised path of Mr. and Mrs. Walker. The couple’s first bankruptcy filing was dismissed. So was their second. And their third, fourth, and fifth—they kept this up for seven years and 9 filings. Each time they would simply not appear at hearings and meetings with creditors.
Eventually, a judge decided they were abusing the automatic stay in an attempt to avoid wage garnishments and liens. A judicial review of their 9th filing resulted in their ban from filing again, a declaration that they were vexatious litigants, and an insight into potential abuse of the filing system.
If any of their filings resulted in debt being discharged, they would have been required to observe statutory waiting periods. But since they intentionally sabotaged each filing, they continually took advantage of collection stays, even if they lasted less than a month.
In theory, filing fees should discourage this behavior, and no bankruptcy lawyer would likely support actions tantamount to fraud. However, absent an aggrieved judge such as the one hearing the Walkers’ 9th filing, they could have continued indefinitely.
There are four combinations by which a person could be seeking subsequent bankruptcies. Each combination has its own timing, a waiting period before debt can be discharged again—but no upper limit on how many times a person can go through the cycle.
After receiving a discharge in a Chapter 7 bankruptcy:
- Before filing another Chapter 7: You must wait exactly 8 years from the date of your previous filing. If you did try to file before that date, the filing would not receive a discharge and you would receive no protection from collections.
- Before filing a Chapter 13: You must wait for exactly four years from the date of your previous Chapter 7 filing prior to filing for relief under Chapter 13. Filings made before four years have passed will not result in a discharge.
After receiving a discharge in a Chapter 13 bankruptcy:
- Before filing another Chapter 13: You must wait two years after your prior Chapter 13 filing which resulted in your debts being discharged. Filings before two years have elapsed would not allow you to receive a discharge.
- Before filing for a Chapter 7: If you failed to repay your debts under the terms of your Chapter 13 discharge, you must wait 6 years from the date of filing before being eligible to file for a Chapter 7 bankruptcy. But if you successfully repaid your debts under Chapter 13 before running up more, or if you repaid more than 70% of your Chapter 13 debts in good faith, you could file for discharge through a Chapter 7 bankruptcy.
Do you qualify to file for bankruptcy?
If you have questions about your eligibility for bankruptcy, especially if you have previously filed, you should discuss your questions with a qualified, experienced bankruptcy attorney.
David M. Offen has spent over 20 years practicing bankruptcy law in Philadelphia. He has helped more than 12,000 clients through the bankruptcy process. Call (215) 625-9600 to schedule a free consultation on how bankruptcy can help you to a better financial life.