You can file a new bankruptcy very soon after a prior one, without getting a discharge of your debts. So how could that be worth doing?
The last blog post was about how long you must wait after a prior bankruptcy to file a new one. The timing rules refer to getting a discharge of your debts in both the earlier case and the one. We mentioned that if the earlier case did not result in a discharge of debts, then you can file the new case at any time. There’s no waiting period since you didn’t get a discharge of debts in the earlier case.
It works the other way around as well. After successfully completing a prior bankruptcy case and getting a discharge of your debts, you can file a new one at any time. You just would not get a discharge of your debts in your new case.
But doing this doesn’t seem to make any sense. Why would somebody need a bankruptcy right after finishing one? And how would that second bankruptcy help if it doesn’t include a discharge of debts?
Why Would You Need a New Bankruptcy Soon After Another?
There are two reasons for a quick second bankruptcy.
First, you could unexpectedly run up new debts during or soon after your first bankruptcy case. Those debts could not be included in that bankruptcy case. That’s because it can only include debts owed as of the date when that case is filed.
You may need protection from those new debts. Those new debts are more likely to arise during a Chapter 13 case instead of a Chapter 7 one. That’s simply because Chapter 7s usually last less than 4 months while Chapter 13s last 3 to 5 years. Your ongoing case does not protect you from collection on new debts.
A second reason for filing a second bankruptcy is if you owe debts the earlier case did not write off. A Chapter 7 case could, for example, leave you owing some income tax debt, back child support, and/or student loans. You may need the extended protection of a Chapter 13 case while you either pay or avoid paying those debts.
What’s the Benefit of the Second Bankruptcy Without a Discharge of Debts?
A discharge of debts is by no means the only benefit of bankruptcy. Sometime the “automatic stay”—protection from the collection efforts of your creditors—is sometimes an even more important benefit.
That’s especially true when the new case is a Chapter 13 one.
First, the protection against creditors usually lasts for years instead of just several months as it does under Chapter 7.
Second, Chapter 13 provides a mechanism—the court-approved payment plan—to deal with the debts you’d likely have then. Chapter 13 is especially good at addressing debts that are not discharged under Chapter 7, while protecting you from them.
For example, imagine that you owe a large income tax debt, plus some back child support, which were either incurred after the filing of your original bankruptcy case or were not discharged in that case. A new Chapter 13 case would essentially give you up to five years to pay those debts. Usually you wouldn’t have to pay any further interest or penalties on the taxes. All the while you’d be protected from the otherwise very aggressive collection actions of those two kinds of creditors.
Why Not Just File a Chapter 13 Case and Avoid Filing Two Cases?
That’s a good question. Usually that’s exactly what is done. Chapter 13 is quite flexible, and so filing one usually takes care of all of your debts in one package.
But there are many situations in which a single Chapter 13 filing simply doesn’t work.
Sometimes you have more debt than is allowed for Chapter 13. So you first need to discharge some of the debt through Chapter 7. Then you can qualify for a Chapter 13 to take care of any remaining debts.
Or you may be contemplating or be in a divorce. You and your spouse agree to file a Chapter 7 case together to clean up many of your debts. Then one or both of you can deal with each of your remaining debts with a Chapter 13 case. The follow-up Chapter 13 case(s) can give you time to pay any surviving taxes, to cure the arrearage on a home, and to tie up any other loose ends.
Clearly, this kind of strategic planning and execution of not just one bankruptcy but two coordinated ones requires the services of an experienced bankruptcy lawyer. Be sure to get the advice you need.