Debtors who return to bankruptcy court face limits on discharges
Going through a bankruptcy doesn't mean all financial problems are over. Some debts are not allowed to be discharged by the U.S. Bankruptcy Court, and remain to be paid when the bankruptcy concludes.
When debtors find they need to re-file because they may not have recovered from their earlier financial difficulties, the court imposes limits on how much time must elapse before they can file a second time.
If an individual's debts were discharged in a Chapter 7 case, another filing of that type will not be allowed for eight years. The debtor may then petition the court under Chapter 13, which will require payments to creditors through a court-approved plan. However, once the plan is completed, the individual's unsecured debt will be discharged only if the Chapter 13 case occurred at least four years after the Chapter 7 case was filed.
In addition, the court protection provided to debtors during the case is more limited in subsequent bankruptcies if a case is filed within one year of the first petition. The automatic stay that halts debt collections and lawsuits by creditors lasts only 30 days - rather than for the duration of the case – in a second bankruptcy. A third bankruptcy filing provides no automatic stay, according to the National Bankruptcy Forum.
In spite of the time limits, there are some benefits to filing a Chapter 13 case before four years have passed after a Chapter 7 action. Debtors can still petition for Chapter 13, but with the understanding that unsecured debts such as credit card and medical bills will not be discharged.
Taking this step allows the debtor to repay creditors through low monthly payments over three to five years. The plan can include payments for past taxes, student loans and other bills that the court does not normally discharge. Throughout the case, the debtor's property is protected from creditors.
Those who have been through a Chapter 13 bankruptcy aren't prevented from pursuing a Chapter 7 petition, but time limits are also imposed in that scenario. Six years must pass between the two cases for the court to grant a full discharge of debts in the second bankruptcy.
If fewer than six years has elapsed, the court will allow the Chapter 7 to proceed only if at least 70 percent of the Chapter 13 debts were paid. Debtors who earn enough income to qualify for two Chapter 13 bankruptcies need to wait two years before they are allowed to have their unsecured debts discharged in the second case.
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