A bankruptcy is a lifeline if you're drowning in debt, but it will severely harm your credit score and ability to borrow money for years.
Ideally, you want to avoid declaring bankruptcy at all, let alone multiple times. However, numerous filings by the same individual are not uncommon. Financial difficulties may resurface, necessitating the filing of another bankruptcy. If you have previously filed for bankruptcy and believe you are about to do so again, you will need to know if and when you can file again.
The decision to file for bankruptcy is often a complex and emotional one. Many individuals grapple with feelings of shame, failure, and uncertainty when considering this option. It's crucial to understand that bankruptcy is a legal tool designed to provide a fresh start for those overwhelmed by debt. While it does have significant consequences, it can also offer relief and a path towards financial recovery for those who truly need it.
When a person files for bankruptcy, they receive a discharge of the debts contained in the bankruptcy, which means they are no longer liable for paying them off. Although there are no restrictions on how often you can file for bankruptcy, there are limitations on how frequently you can receive a discharge.
How frequently may you apply for bankruptcy?
There is no limit to how many times you can declare bankruptcy, but you are limited in how frequently you can file for and earn a discharge. The length of the waiting period between bankruptcy filings is determined by the type of bankruptcy you previously filed and the type you intend to file today.
Barring mitigating circumstances, an individual filer's two bankruptcy options are Chapter 7 and Chapter 13. Chapter 7 bankruptcy entails liquidating any non-exempt assets to repay your obligations, which might take four to six months. Chapter 13 bankruptcy allows you to keep your assets while completing a debt payback plan that normally lasts three to five years.
Here are the waiting periods for all possible combinations of individual bankruptcy filings. The clock begins with the filing date of your last case.
It's worth noting that these waiting periods are not arbitrary. They are designed to prevent abuse of the bankruptcy system and to encourage individuals to make genuine efforts to manage their finances between filings. The longer waiting periods for Chapter 7 bankruptcies reflect the more comprehensive debt relief provided by this type of filing, while the shorter periods for Chapter 13 acknowledge the partial repayment of debts that occurs under this plan.
If the courts dismiss your bankruptcy case without prejudice (i.e., without suspicion of fraud), you may re-file immediately or make a move for reconsideration. However, if a judge rejected your lawsuit with prejudice or you voluntarily dismissed it, you must wait 180 days to file again. During this time, creditors can continue their collection efforts.
Not everyone is qualified for Chapter 7 bankruptcy; you must meet certain financial requirements. Filers with incomes less than the state median pass automatically. If your income exceeds this level, the more disposable income you have, the worse your chances become. Ineligible Chapter 7 filers may convert their case to Chapter 13.
Important considerations before filing for bankruptcy
Your financial status
Filing for bankruptcy is not a choice to be taken lightly, especially if you have already filed before. Adrienne Hines, a bankruptcy attorney of Kademenos, Wisehart, Hines, Dolyk & Wright Co. LPA, suggests you ask yourself the following questions:
- Are you burdened by your debt?
- Are you losing sleep over credit card, medical debt, or personal loan payments?
- Are you in over your head with an unaffordable car or home?
Alternatives to bankruptcy.
Even if these scenarios apply to you, Scott Glatstian, an attorney at Rosenblum Law, recommends that you consider bankruptcy alternatives such as debt settlements or credit counseling before filing.
You may read our comprehensive guide to the finest debt settlement and management services.
"Bankruptcy should be viewed as a financial tool rather than a sign of defeat," Hines said. "If acknowledged and addressed in a timely manner, it can prevent the deterioration of one's financial situation. Individuals may find it simpler to seek solutions and protect their financial future if the stigma associated with debt and bankruptcy is removed."
While bankruptcy can provide relief, it's essential to address the root causes of financial distress to avoid future filings. This often involves developing better financial habits, creating and sticking to a budget, and seeking education on personal finance management. Many bankruptcy courts now require debtors to complete financial management courses as part of the bankruptcy process, which can provide valuable skills for maintaining financial stability post-bankruptcy.
Factors to Consider Before Refiling
Though you can file this frequently, you should exercise caution because declaring bankruptcy has a negative influence on your credit score.
Impact on your credit.
According to Lamine Zarrad, CEO and founder of StellarFi, a personal financial and credit-building tool, filing for bankruptcy will lower your credit score by 100 to 200 points, possibly more, depending on how high it was before to bankruptcy. Regardless of the sort of bankruptcy you file, "multiple bankruptcies will make it harder for you to achieve financial stability, access loans for a home or car, get approved for a credit card, and more," according to Zarrad.
While both Chapter 7 and Chapter 13 bankruptcy will have the same impact on your credit score, creditors may regard a Chapter 13 bankruptcy more positively.
Bankruptcies will have a long-term impact on your credit. A Chapter 7 bankruptcy will remain on your credit report for ten years, whereas a Chapter 13 bankruptcy will be removed after seven years. However, bankruptcy can also prevent you from incurring additional debt and benefit you in the long run.
To prevent filing for bankruptcy again, you can also work to improve your credit score. The Federal Trade Commission recommends that you make adjustments to your financial habits, such as paying your bills on time, reducing your debt, and avoiding taking on new debt whenever possible. Any individual or company that promises to be able to delete a bankruptcy off your credit report is most certainly a fraud.
It's important to note that while bankruptcy does have a significant negative impact on your credit score initially, it's possible to begin rebuilding your credit immediately after discharge. This can be done through secured credit cards, credit-builder loans, and consistently paying bills on time. Many individuals find that their credit scores begin to recover within a year or two after bankruptcy, provided they maintain good financial habits.
No discharge does not imply you shouldn't file.
If you find yourself in a scenario where you need to refile before the waiting period for a discharge expires, that does not imply you cannot file. It does mean that if you file too soon after wiping off debts in your previous bankruptcy case, you will be ineligible for a debt discharge in your current case. It may still make sense to file in certain circumstances, such as if you require the automatic stay, which provides temporary reprieve from creditors.
"Bankruptcy is an amazing tool to help individuals get out of unmanageable debt, and it's often overlooked or stigmatized in an unfortunate way that may lead some people away from filing even though there would be a clear benefit to them," Glatstian adds. "Nevertheless, filing for bankruptcy — once or multiple times — is going to have a significant impact on your life for years to come."
