A Chapter 13 bankruptcy can provide debt relief similar to a Chapter 7 bankruptcy, but it’s important to understand how much you will have to pay monthly (as Chapter 13 is a 3 or 5 year payment plan) and the rules.
Life can get hard sometimes such that one can have problems coping financially even after filing for bankruptcy. You may be considering a Chapter 13 bankruptcy after a Chapter 7 bankruptcy due to the time frame of the last filing.
The good news is that a debtor can often have multiple bankruptcy filings. For example, a common question is whether you can file Chapter 7 bankruptcy before the 8 years are up.
Will your Chapter monthly payment be affordable?
There are specific rules that one must follow when filing a Chapter 13 after Chapter 7 bankruptcy.
The purpose of this article is to help you estimate the cost of your Chapter 13 repayment plan and also understand the rules for filing a Chapter 13 bankruptcy after a Chapter 7 bankruptcy. Before deciding to file a Chapter 13 bankruptcy, you may want to take a Chapter 13 after Chapter 7 calculator below to estimate the monthly cost of your Chapter 13 repayment plan to see whether it’s affordable. The calculator is based on Chapter 13 specific US Bankruptcy Forms.
Now that you have estimated the monthly cost of your Chapter 13 repayment plan, let’s get into the details.
- Understand 2-4-6-8 Filing Rule
- Estimate Chapter 13 Affordability
- Consider Speaking With Attorney
- Understand the Discharge
- Compare Bankruptcy Alternatives
Firstly, let’s get into some background of a Chapter 13 bankruptcy. A Chapter 13 bankruptcy is a voluntary reorganization of debt for individuals. There’s a payment plan involved and the Chapter 13 bankruptcy generally lasts 3 or 5 years. In a Chapter 13 bankruptcy, you are effectively making payments out of future income, but are more likely to retain your home or automobile if that equity exceeds the exemption. There are generally three types of debt in a Chapter 13:
1. Priority Debt
2. Secured Debt
3. Unsecured Debt
Next, let’s begin by discussing the periods required between bankruptcies. But the question is, “What is the waiting period between the first and the second filing motion?” To answer this question, one should consider the following things:-
- The debtor should be clear about what chapter one wants to file.
- The consumer should note the chapter which was filed before.
- The debtor can know the waiting time depending on whether a discharge was given in the earlier case.
After having been clear on the three conditions, it is easy for the debtor to know the waiting time. Better still, the debtor can easily answer the question with the help of the 2-4-6-8 rule. Read on to see how it works. Normally, the restrictions in terms of time a debtor waits to get another discharge are contingent on the types of bankruptcy filed earlier with the two primary chapters being the Chapter 13 Bankruptcy and the Chapter 7 Bankruptcy. Further, the bankruptcy which one wants to file now will be factored in the determination.
How soon can you file Chapter 13 after Chapter 7?
You can file a Chapter 13 bankruptcy four years after a Chapter 7 case. The filing date of your previous Chapter 7 bankruptcy must be at least four years prior to the filing date of your new Chapter 13 bankruptcy case. You will learn more about the 2-4-6-8 rule below that helps guide filing time frames.
Understanding the 2-4-6-8 rule for Bankruptcy Filings
Below is some information regarding the 2-4-6-8 rule regarding bankruptcy and filing.
Do Time Limits Apply To Discharges?
In the 2-4-6-8 rule, it is apparent that the time restrictions apply only to debt discharges. This is to say that the time frame for the application of bankruptcy for a second time is not strict. In fact, there is no minimum period set in the bankruptcy law which one must wait until the second bankruptcy filing. But there is a catch. The timing of the second filing is very critical as it can deny you the opportunity to receive a debt discharge. If you do it immediately after paying off all debts in the earlier case, you will not receive debt forgiveness in the second filing.
As you can see, it is really up to you, and why you must file for bankruptcy, on what option to take in the second filing. You might just end up wasting valuable time and resources filing a second case, which is not significant in any way.
Why does the order of the filing matter?
It is crucial to note that every bankruptcy case filed has its own period within which one should repay the debts. This period affects your chances of getting debt forgiveness if you file for a second case regardless of the type. The order with which you file the cases determines whether you get debt discharge or not. In the 2-4-6-8 rule explained above, you can see that the number of years one can wait until the next filing and to be eligible for forgiveness varies. Therefore, always take note of the order to increase the chances of getting your debts forgiven.
What Happens If Bankruptcy Was Dismissed and Debts Were Not Forgiven
Anybody can file bankruptcy cases as often as necessary. The 2-4-6-8 rule explained here can help you to understand how often you can file for bankruptcy. However, what happens if you had a prior case that was dismissed or one that is pending within 12 months? In the first instance, if you had one case dismissed within the last 12 months, there is a possibility to file a second case. Meanwhile, you will be eligible for only 30 days of the automatic stay in the second filing. However, the automatic stay ceases to exist after the 30 day period, and creditors can enforce the collection of your possessions.
Another instance is when you have two cases that are pending or dismissed in the last 12 months. In this case, the law allows you to file another bankruptcy case, but you may run into problems with the automatic stay. Here, you have to ask the court to impose the automatic stay otherwise the creditor can proceed with possession of the property you own.
Consider this example:
Gregory just filed a Chapter 7 case in May 2019. Previously, he filed cases as listed below:
- 2007, Chapter 13 case; debts forgiven
- 2009, Chapter 13 case; case dismissed since debts were cleared
- 2015, Chapter 7 case; dismissed on technicalities.
In all of the cases Greg filed, the automatic stay was intact. However, he will need to convince the courts that the prior cases were not dismissed because he was trying to game the system. There is a possibility that the case will be allowed to proceed, but if dismissed, Greg will have to wait for another 12 months or more to file another case.
Can A Second Filing For Bankruptcy Be Beneficial Without Debt Forgiveness?
Economic hardships could be unforgiving sometimes to the point that a debtor with a prior bankruptcy filing might need to file a second case. While it is legally permissible to file for the second time, issues could arise such that the court can fail to discharge the debt in the new case. Then, can this filing be beneficial? Read on to get the answer. There is no minimum period set out by the law concerning when to file a bankruptcy case for a subsequent time. Instead, time restrictions come into the picture in cases where you are looking for debt discharge.
Once you have filed for bankruptcy for the second or third time, it is up to the court to decide whether or not you deserve debt forgiveness. During the second filing, you can be more precise about receiving the discharge. It gets difficult in the third filing and the others after it. However, you can miss the opportunity for discharge during the second filing. Normally, if you pay off the debt in the first filing, you will not access discharge if you file for a second time soon after the previous one. Also, you will not access the discharge privilege if you have paid off at least 70% of the previous debt. As such, you need to time bankruptcy filing so that it does not turn out to be a waste of time. But what if it makes sense to proceed even when discharge will be denied?
When Filing for Second Time without Discharge Can Be Beneficial
It is not uncommon that the point of filing for bankruptcy is to get your debts discharged. But it is not always that people want discharges. Sometimes people simply need ample time to pay off debts, especially the ones which are non-dischargeable under the law. A good example of when a debtor can file a case without discharge and find it beneficial is when one owes federal taxes. Usually, such debts are not dischargeable under the existing law. In such a case, the creditor, which is the IRS, has the legal powers to garnish the wages of the debtor.
Obviously, garnishment of income is not an outcome anyone would appreciate. There are legal procedures like filing an objection against the IRS, but this is not guaranteed to succeed. Say, for instance, a debtor filed for a Chapter 7 bankruptcy and was unable to achieve debt forgiveness from the case. After the case, the debtor could not come up with a payment plan, which is reasonable, according to his/her income. What is the best possible way forward?
In such a case, the debtor has the option of what is called a Chapter 20 bankruptcy. Basically, this entails filing for Chapter 13 bankruptcy immediately after receiving a discharge from a previously filed Chapter 7 case. This strategy will help the debtor to spread the payments of the debts owed over a period of time, making it manageable. Specifically, this method is useful in case of debts that the court cannot discharge.
Automatic stay
Apart from debt discharge, an automatic stay is the biggest reason debtors file for bankruptcy. Upon filing for bankruptcy, the court immediately creates an automatic stay. Normally, the order is a document, one page in length, which is delivered to creditors with express instructions directing them not to take certain actions against the debtor.
Some of the actions from which the automatic stay, as per 11 U.S. Code § 362, prohibits creditors taking include pursuing any kind of proceeding, be it administrative or judicial, against the debtor. Also, the creditor cannot pursue recovering activities. The automatic stay also stops the creditor from enforcing any kind of judgment in light of bankruptcy. Essentially, the automatic stay will protect your wages from being garnished or seizing of your bank account. It can also stop a foreclosure.
What happens when the creditor violates the automatic stay?
Creditors have the ability to use judicial means to bypass the automatic stay. However, if the creditors’ actions amount to a gross violation of the order, their actions can be held in contempt followed by sanctions by a Bankruptcy Court. In Chapter 13 bankruptcy cases, creditors can file a motion aimed at modifying the automatic stay. The primary object such a motion is to remove the bankruptcy protection that the automatic stay affords the debtor. Normally, this happens in the instances where the debtor fails to make appropriate payments to the mortgage or trustee.
Automatic Stay Limitations
There are limitations to automatic stay where the debtor is not protected despite having obtained the order. For instance, if the foreclosing proceedings for your house commenced before you filed the bankruptcy case, the creditor might proceed with your eviction even with an automatic stay in hand. Also, the stay does not protect the debtor from taking care of his/her tax liability. Further, the debtor might not be protected from meeting the need to pay child support, tax liens, and any other items not captured in the order.
Should You File A Chapter 13 After Filing A Chapter 7 Case?
Once you file for a Chapter 7 bankruptcy, your options are limited. However, you can file for Chapter 13, which will help you to spread out the payment of the debts captured in the case. It can take 8 years to be able to file a Chapter 7 after filing Chapter 7 bankruptcy previously. While it takes between four and six months to discharge the case, the debtor can only file Chapter 7 after eight years.
But what happens when your payment plan with your creditors is not working well? This is where a debtor can opt for Chapter 13. Usually, this case helps the debtor to re-organize the payment of the debts captured in the previous Chapter 7 case. Oftentimes, filing for Chapter 13 bankruptcy immediately after a Chapter 7 is called Chapter 20 bankruptcy.
After Chapter 13, you will make payments to your trustee who will then distribute the payments to your creditors. The trustee and your attorney will determine the amount you can pay on the basis of your assets and expenses. We provide two resources to help you determine the answer to this question. First, we provide a Chapter 7 calculator to see whether you qualify. Second, we created a Chapter 13 calculator below to help estimate your plan payment.
Alternatives to filing for bankruptcy
While you can file for bankruptcy to get a fresh start financially, it is always advisable to consider some alternatives first. They include:
Debt settlement
Once your debts have become unmanageable, you can hire an individual or company to negotiate on your behalf. Normally, they negotiate so that you can pay a lower amount than owed. In terms of severity, debt settlement comes just below Chapter 13 bankruptcy. The advantage of debt settlement is that you will pay less than you owe. Usually, a debtor can get to save as much as 50% depending on the creditor. Also, the payment structure is flexible, and you can get freedom from debt much faster. Perhaps the most significant advantage of debt settlement is that a debtor will get to avoid bankruptcy.
On the flip side, your credit score will be badly damaged when you come out of the debt settlement process. Also, creditors can sue the debtor to compel payment or to curtail debt negotiations.
Debt management
Unlike debt settlement, debt management negotiates for lower interests on debts owed. Typically, debtors will pay all the debts owed. However, it might be lower compared to other scenarios since the interest will be lower. The major advantage of debt management over debt settlement is that the damage to your credit report will not be extensive. Also, the debtor gets to stretch out debt payment to between 3 and five years.
On the contrary, the debtor will access minimal debt payment flexibility under debt management. Also, the success rate of this process is quite low.
Debt Payoff Planning
You can as well get out of debt with doing-it-yourself techniques like debt snowball or debt avalanche.
A debt snowball involves the payment of the accounts which have a low balance. The trick behind this technique is that paying such smaller amounts will motivate the debtor into paying larger debts over time.
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