Both Chapter 13 and Chapter 7 bankruptcy can offer debt relief. However, the two bankruptcies work and cost differently. So, you should consider how much your Chapter 13 plan payment will be and the plan's rules before filing for Chapter 13 bankruptcy after Chapter 7 bankruptcy.
Every debtor expects that after filing for bankruptcy, their lives will be debt free, and they can enjoy a fresh financial start. Sadly, the reality is that sometimes life gets hard, and sometimes, debtors who recently got their debts discharged through bankruptcy might still have financial problems.
So, if you had filed a Chapter 7 bankruptcy and got your debts discharged but somehow fell back into bankruptcy and are currently in need of a debt relief option, you might consider filing Chapter 13 bankruptcy. This is because you cannot file Chapter 7 bankruptcy again until the time frame, usually 8 years, lapses. Here is a comprehensive guide on everything you need to know about filing for Chapter 13 bankruptcy after Chapter 7 bankruptcy.
Chapter 13 Bankruptcy
First, let us explain what Chapter 13 bankruptcy is. Chapter 13 bankruptcy is a debt relief option that involves voluntary reorganization of debt through a payment plan that could last between three and five years. You will be following the Chapter 13 plan payment to repay unsecured creditors, and the plan is based on future income. Unlike Chapter 7, which focuses on liquidation, you will likely retain your assets if their equity is higher than the exemption.
Under Chapter 13 bankruptcy, debt can be classified as priority debt (debt which must be repaid), secured debt (debt incurred alongside collateral, e.g., mortgage), and unsecured debt (e,g, credit card debt)
Find Out If Your Chapter 13 Plan Payment Will be Affordable
When your debts only seem to worsen, and with creditors on your neck, you are willing to take the fastest route to keep them at bay. Nevertheless, there are some factors you need to consider before rushing to file for Chapter 13 bankruptcy.
After previously filing Chapter 7 bankruptcy, there are some rules you must follow when you decide to file chapter 13. Use a Chapter 13 after Chapter 7 calculator to get an estimate of how much your plan payment under Chapter 13 bankruptcy will cost. The calculator uses the same principle as the US bankruptcy forms, so they give a reliable estimate. Is the estimate affordable for you? If yes, there are certain things you should know before filing for Chapter 13 bankruptcy.
How Long Can I Wait Before Re-filing Bankruptcy?
The waiting period will depend on various things:
- Which chapter would you like to file?
- What chapter had you previously filed?
- Did you receive a discharge from your previous filing?
After understanding these three conditions, you can easily know how long you should wait before filing. You should wait four years to file a Chapter 13 bankruptcy after filing a Chapter 7 bankruptcy case. The 2-4-6-8 rule gives a clear guideline on the filing time frame.
What is the 2-4-6-8 Rule?
The rule focuses on the three conditions used to determine how long a debtor should wait before filing for bankruptcy and provides a clear timeline for the waiting duration.
· 2 - If you had filed a chapter 13 bankruptcy case earlier, and your debts were discharged on completion of the plan, you will need to wait for two years after the date you filed the first case to be eligible for discharge. Since a Chapter 13 plan payment takes three to five years, once it is closed and the debts discharged, the debtor can be eligible for discharge again in a second case after a two-year waiting period.
· 4- If you had earlier filed a chapter 7 bankruptcy successfully and had your debts discharged and wish to file a chapter 13 bankruptcy, you will need to wait for 4 years. Filing chapter 13 after chapter 7 can help, especially with high-priority debts which cannot be discharged. A Chapter 13 plan payment will also help you catch up on secured payments you might be falling behind on, such as a car loan or a mortgage, even when you are not eligible for discharge. Successfully filing a Chapter 13 bankruptcy after Chapter 7 is known as a Chapter 20 bankruptcy
· 6- If you had previously filed Chapter 13 bankruptcy, received a discharge, and would like to file a chapter 7 bankruptcy, you will need to wait 6 years. Usually, filing a chapter 7 after Chapter 13 is hard but not impossible. It is hard because if you paid back all your unsecured debt or at least 70% of your total unsecured debts, while in Chapter 13 bankruptcy, the rule will not apply. However, if you did not fully pay your debts or paid less than 70% of the unsecured debts, you will be eligible to file for Chapter 7 bankruptcy after six years.
· 8- If you had previously filed a Chapter 7 case and would like to file another Chapter 7 case after receiving a discharge in the first case, you will need to wait for 8 years to be eligible for discharge.
Does the Time Limit Apply to Applications or Discharges?
The 2-4-6-8 rule clearly shows the time restrictions within which you can only apply if you had previously filed for bankruptcy and received a debt discharge or would like to receive a discharge again. Therefore, there is no timeframe within which you should wait before filing for bankruptcy again.
However, if you would like to receive a debt discharge, you should wait for the recommended time, depending on the bankruptcy you had previously filed and the chapter you wish to file now. Filing before the period lapse might stand in your way of receiving debt forgiveness, wasting your time and money.
Why is the order of filing important?
Chapter 7 and Chapter 13 bankruptcy work differently. Each has a period within which the debt is repaid. This period will determine whether the court grants you debt forgiveness should you file for a second bankruptcy case. Therefore, the order of filing will determine if you are eligible for a debt discharge. The 2-4-6-8 rule clearly explains how long you can wait before the next filing to be eligible for debt forgiveness. Follow the rules to increase your chances of debt relief.
What if my Previous Bankruptcy Case was Dismissed and I Did Not Get a Debt Discharge?
You are allowed to file bankruptcy as often as you deem fit. However, the 2-4-6-8 rule explains how often you should file for bankruptcy if you would like to receive a debt discharge. But what happens if you had previously filed for bankruptcy, but the court dismissed your case, you did not get a discharge, or you have a pending case?
If your previous case was dismissed within the last year, you could file a second one. However, during your second filing, the court will only grant an automatic stay for 30 days. Therefore, your creditors can continue to pursue you after the 30 days lapses.
You can still file another bankruptcy case if you have two pending cases or cases dismissed within the last year. However, you will have to request the court to enforce an automatic stay, failure to which your creditors can repossess the property.
Here is a practical example:
Anne filed a Chapter 7 Case in April 2020. She had previously filed bankruptcy cases as follows:
2008, Chapter 13 bankruptcy, and her debts were forgiven
2010, Chapter 13 bankruptcy, but her case was dismissed since she cleared her debts
2016, Chapter 7 case, which was unfortunately dismissed due to technicalities
The automatic stay in all the cases Anne filed was intact. However, she will need to convince the court the two previous cases were not dismissed in an attempt to game the system. The court might allow the case to proceed, or the court can dismiss the case, and Anne will need to wait another year or longer to file another bankruptcy case.
Is It Worth Filing a Second Bankruptcy Case Without Debt Forgiveness?
The 2-4-6-8 stipulates how long you should wait to file bankruptcy again to be eligible for debt forgiveness. Usually, debtors file bankruptcy intending to get their debts forgiven. However, it is not always that a debtor can wait for the recommended period. Sometimes, financial hardships may force a debtor to file a second case soon, making them ineligible for debt forgiveness. But will it be beneficial?
If you are filing for bankruptcy for the second time, the court will determine whether you are eligible for debt forgiveness. In most cases, if you pay off your debt after your first case, you might not qualify for discharge if the second filing is soon after the first. However, during the third filing and subsequent bankruptcy cases after that, it gets difficult to have your debts discharged.
When Can Filing Bankruptcy for a Second Time Be Beneficial even Without Discharge?
While the ultimate goal is to get your debts forgiven, sometimes, the debtor is not always after discharge. For example, if you have a lot of debts to repay and have the income to repay the debts but need more time, then filing for Chapter 13 bankruptcy will be beneficial.
Also, if you are struggling with priority debts that cannot be discharged, like federal taxes, you might need a plan that allows you to repay the debt over a longer period. Instead of having your creditor or the IRS push to garnish your wages, you can file for chapter 13 bankruptcy and repay these debts.
If you had previously filed Chapter 7 bankruptcy but did not get debt discharge, you will still be legally liable to repay your debts. So, what happens if you cannot find a payment plan according to your income?
Consider Chapter 20 bankruptcy.
Chapter 20 bankruptcy is where you file a Chapter 13 bankruptcy case as soon as you receive a discharge from Chapter 7 bankruptcy. It will help you spread your owed payments over a long period, usually three to five years, making it more manageable to repay your debts. Chapter 20 bankruptcy is quite useful, especially when dealing with non-dischargeable debts.
Besides getting debts discharged, an automatic stay is another common reason debtors consider filing bankruptcy. When you file for bankruptcy, the court will create an automatic stay, a court order usually one page long, sent to your creditors with clear instructions forbidding them from taking certain actions against you.
An automatic stay prohibits creditors from taking any legal action against you, whether judicial or administrative. Therefore, they cannot sue you or file to garnish your wages. It also prohibits creditors from moving forward with debt recovery activities, e.g., calling you, harassing you, or selling your debt to a debt collection agency. The automatic stay also orders the creditor to avoid enforcing any judgment once they know you declared bankruptcy. An automatic stay will protect you from your creditors and any attempt from them to recover their debt, including foreclosures.
What if a creditor ignores the automatic stay?
Although creditors can use a judicial approach to bypass an automatic stay, if they ignore the automatic stay and their actions violate the order, they will be held in contempt by a Bankruptcy court. On receiving the automatic stay, a creditor is allowed to file a motion with the court to modify the automatic stay in an attempt to remove the bankruptcy protection. Most creditors will file this motion once the debtor fails to meet their payment as agreed in the Chapter 13 plan payment.
Limitations of the Automatic Stay
Like any other legal order, there are limitations to the automatic stay- a situation where you are still not protected from creditors despite obtaining an order from a bankruptcy court. For example, suppose your creditor had already begun the foreclosing proceeding before you filed for bankruptcy.
In that case, they might be allowed to proceed with the eviction even after the court orders an automatic stay. An automatic stay also doesn't protect you from taking care of your tax liability or paying tax liens, child support, and other items not included in the order.
Should You Proceed to File a Chapter 13 A Chapter 7 Case?
While a Chapter 7 bankruptcy case is more affordable and takes a considerably shorter time, it limits your options. You might also need to wait 8 years to file another Chapter 7 case after previously filing Chapter 7 bankruptcy. Instead of these limitations, you can file for Chapter 13 and spread out your debts to easily repay them, especially for priority and non-dischargeable debts. Under Chapter 13 bankruptcy, you will make payments to a trustee assigned to your case by the court, who will then use the funds to repay your creditors.
Your attorney will work alongside your trustee to come up with a payment plan depending on your income, assets, and expenses. Use our Chapter 7 calculator to determine if you are eligible to file Chapter 7 bankruptcy and our Chapter 13 calculator to estimate the monthly cost of your plan payment. If you proceed to file, here are 8 costly bankruptcy mistakes to avoid.
Still Unsure of Whether to File Bankruptcy? - 3 Alternatives Available to You
If you are still skeptical about whether to file for bankruptcy, other debt-relief options can also grant you a fresh financial start. They are:
A debt management company will negotiate with your creditor for a lower interest on your debt. You must repay your outstanding debts but might pay less if the creditor agrees to lower your interest. While you may not save much paying your debt as you would in debt settlement, the damage on your credit report will be minimal. Besides, you can repay the debts in three to five years. However, it is quite tricky as the success rate of debt management is quite low.
When your debts become unmanageable, you can work with a debt settlement expert or company to negotiate with your creditors on your behalf. The individual or company will persuade creditors to accept a lower amount than originally owed to clear the debt. If they agree, you will pay as much as 50% less than you owe. Most payment structures are flexible, and you can quickly eliminate your debts. The downside to debt settlement is your credit score will be greatly hurt, and your creditor might decide to sue you to curtail the negotiations or compel payment.
Debt Payoff Planning
If you are confident in your financial discipline and can repay your debts with a little push, consider debt payoff planning. It uses simple DIY techniques like debt avalanche and debt snowball.
In a debt avalanche, you come up with a debt payment plan starting with debts that attract the highest interest to prevent debt accumulation. Debt snowball works the opposite, as it focuses on creating a debt payment plan giving priority to low-balance debt, hoping it will motivate the debtor into paying the larger debts,