Can you declare bankruptcy twice?
A bankruptcy is an extreme step taken after a lot of hardship. Many circumstances push people into personal bankruptcy – from lost jobs to medical costs which aren’t covered by insurance to events such as disasters etc.
Whatever the reason, getting a discharge from your major debt obligations under a bankruptcy is a fresh start at life, and one should use the lessons from past events to stay out of the red from then on. However, as noted, not all events are controllable and circumstances may arise to push you into bankruptcy again.
The law acknowledges this and, hence, allows you to declare bankruptcy twice, or even more times if need be. But there are term limits which bar you from getting a discharge again within specific time periods, and they depend on the kind of personal bankruptcy you went for the first time.
Personal bankruptcy
There are two kinds of personal bankruptcies – a chapter 7 filing, which is the most common form of bankruptcy, and a chapter 13 filing.
A discharge under a chapter 7 filing means that you will lose all your properties, except those that are exempt under the bankruptcy law, in exchange for wiping out a majority of your debts. This kind of discharge is also known as a ‘fresh start’ as it does play that part in the debtor’s life.
The second kind is a chapter 13 bankruptcy filing, which works towards restructuring your debts in such a way that makes it easier for you to meet them with your current resources and income. The restructuring is done with negotiations with your creditors and usually includes features such as cutting down your debt burden and increasing the time period over which you may pay it off.
Now, if your first personal bankruptcy filing was a chapter 7 and you successfully got a discharge, the law says you cannot get another chapter 7 discharge for 8 years, or a chapter 13 discharge for 4 years.
If your first discharge was under a chapter 13 filing, you are barred from getting a chapter 7 discharge for a period of 6 years, while you may get another chapter 13 discharge after 2 years.
You may, however, get another discharge after a successful chapter 13 filing before the term limits are up if you have completely paid off all the debts from the first filing, or if you have met at least 70 percent of the obligations and can prove in good faith that you cannot, even with your best efforts, pay any more.
Consider the impact
Though there is no limit on how many times you can declare personal bankruptcy in your lifetime, you must consider its impact on your credit report. A chapter 7 filing will appear on your credit report for 10 years, while a chapter 13 filing will show for up to 7 years.
Bankruptcy protection is not a free ride – your filing might not be successful, and a chapter 7 discharge is hard to get since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 introduced provisions that push you into a chapter 13 filing.
So, it is better to use the mandatory credit counseling you have to take for a bankruptcy filing and the fresh start you get from a discharge to build a better financial future.
