While many people hope to never need to file a Bankruptcy case, it is important to remember that the process of bankruptcy is a legal and financial tool that is designed to help individuals and families recover from economic hardship. As such, knowing the limits on how often you are able to file a bankruptcy case is valuable financial planning information.
Chapter 7 Bankruptcy
A chapter 7 case can provide a very large benefit by allowing you to discharge, or eliminate, nearly any kind of debt. However, the trade-off for this benefit is a strict limit on how often this type of case can be filed. Once you have received a discharge in a Chapter 7 case, you cannot receive another Chapter 7 discharge for 8 years. The timing is counted from the day the first case is filed to the day the second case is filed.
Chapter 13 Bankruptcy
A chapter 13 case is designed to reorganize your debts into a manageable payment plan. Since you are actively paying on your debts while the Chapter 13 case is ongoing, the limit on filing is not as severe. After filing a Chapter 13 case and receiving a discharge, you are eligible for another Chapter 13 discharge in 2 years. Importantly, a normal Chapter 13 case will last anywhere from 3 to 5 years. Since the timing is counted from the date of filing and not the date of discharge, in many cases you are eligible for a 2nd Chapter 13 discharge immediately after finishing your first Chapter 13 case.
Your Future Options after Bankruptcy
After a Chapter 7 case, you can obtain a Chapter 13 discharge only 4 years later. You can see that the Chapter 7, although it provides great benefits, limits your future options. After a Chapter 13 case, you are eligible for a Chapter 7 discharge in 6 years. And since the Chapter 13 will last for 3-5 years itself, the time to wait would be only 1-3 years. In some cases, you can obtain a Chapter 7 discharge sooner where your Chapter 13 case paid back all of your debts or at least a large portion.
In summary, Chapter 7 is typically a good choice for someone who has large, one-time debts, but could easily get back on their feet financially if those debts were gone. Chapter 13 is often a better choice for people who may need more time to recover from a financial hardship, such as an unexpected career or lifestyle change.
When considering bankruptcy as a financial option, it is important to meet with an experienced attorney who can help you balance your options for immediate relief or future financial flexibility. At Bond & Botes, our attorneys have years of experience helping people analyze their household finances to decide the path that is best. We offer free initial consultations as all of our convenient locations in Alabama, Mississippi, and Tennessee. Even if you aren’t actively considering bankruptcy but want more information to help plan for the future, contact our offices so we can help you.