Once a bankruptcy has been discharged, the amount of time that must pass before you file again depends on the chapter of bankruptcy you originally filed and the chapter you intend to file now.
There are multiple bankruptcy chapters, each with its own set of advantages, disadvantages, and requirements. An experienced bankruptcy lawyer can help you determine which chapter is right for you and if you qualify. Read on for more information about the different types of bankruptcy and whether any of these options may be right for your business.
Understanding bankruptcy chapters
- Chapter 7
Following a Chapter 7 or 11 discharge, you must wait eight years before filing. If you previously filed a Chapter 12 of 13, however, you must only wait six years after discharge.
- Chapter 11 and 12
As these chapters don’t impose a waiting time requirement between discharges, you can file for Chapter 11 or 12 at any time following a prior discharge.
- Chapter 13
Following a Chapter 7, 11, or 12 discharge, you must wait four years before filing. If you previously filed a Chapter 13, however, you must only wait two years.
Could Chater 11 apply to an individual?
Although Chapter 11 is the most common type of bankruptcy filed by businesses, it can be used by individuals as well. An individual may file Chapter 11 if a high level of disposable income places them outside of the debt limit for a Chapter 13 or Chapter 7. A high-profile or high net worth individual is more likely to file a Chapter 11 bankruptcy than would someone in a typical financial situation.
More commonly, Chapter 11 allows a business to remain active while paying creditors over a specified period of time.
To do this, the business will file a voluntary or involuntary petition with the bankruptcy court—voluntary petitions are filed by the debtor, whereas involuntary petitions are filed by the creditors, but not until after certain criteria have been met. Generally speaking, the debtor will then have about four months to establish a reorganization plan for going forward. If it sees fit, however, the court may extend this period to up to 18 months.
The purpose of the reorganization plan is to prioritize certain debts and creditors by placing them into different classes. Unsecured claims, for example, would be in their own class. If you believe that filing Chapter 11 bankruptcy may be the best option for your business, it is in your best interest to speak with an attorney who specializes in bankruptcy law.
Exceptions to the rules
There are exceptions to the guidelines above, however. For example, time requirements may be reduced if you paid 100 percent of unsecured claims (or 70 percent in a good faith plan) in your Chapter 12 or 13 bankruptcies. On the other hand, Chapter 11 and 12 guidelines might not be as easy and straightforward as stated above if you violated a court order or had a case dismissed during the 180 days preceding your bankruptcy filing. In either of these situations, you may not immediately qualify for another discharge.
Talk to an attorney
According to Dean A. Langdon of DelCotto Law Group in Lexington, Kentucky, costs and credit issues often prevent businesses from filing bankruptcy over and over again.
“If a company files Chapter 7 bankruptcy, its assets are liquidated to pay creditors, so it can really only do that once,” Langdon says. “When a company files a Chapter 11 bankruptcy, it can have a plan approved that discharges its debts once the plan is confirmed, as long as the company continues in business. It could then file another Chapter 11 bankruptcy and get rid of any new debts by having a new plan approved. While this could happen several times over the life of a business, it rarely happens more than two or three times because of the expense and inability to get credit after several bankruptcies.”
The decision to file bankruptcy a second (or third or fourth) time is rarely an easy one. Ensuring that you understand the process and how it will impact you can greatly reduce stress and anxiety, allowing you to focus on what’s important: your business. Fortunately, most bankruptcy attorneys offer a free initial consultation to help you determine your rights and options if you are considering filing again.