Filing Two Bankruptcy Cases Can Be A Smart Move

23 Jan Filing Two Bankruptcy Cases Can Be A Smart Move

You might be wondering how filing two bankruptcy cases could possibly be legal, or why somebody would ever want to do it. Actually, filing two bankruptcy cases is not that unusual, although most would not benefit from this process. “Filing two bankruptcy cases” does not mean filing two cases at the same time; it means filing one case, usually a chapter 7, then when the first case is finished, filing another one, usually a chapter 13. For some, this can produce valuable results which cannot be obtained any other way.

The bankruptcy law says that a person cannot receive a chapter 7 discharge within eight years of receiving a prior chapter 7 discharge. Also, a person cannot receive a chapter 13 discharge within four years of a prior chapter 7 discharge. However, these are limitations on receiving a discharge, and do not limit eligibility to file a bankruptcy at any particular time. Sometimes, receiving a discharge is not the desired goal of a bankruptcy filing. Instead, a bankruptcy might be filed for the purpose of obtaining a stay of collection activity, and the stay can last for years in a chapter 13.

An example of a situation calling for two bankruptcies is when the debtor has debts in excess of chapter 13’s debt limits of $307,675 for unsecured debts, or $922,975 for secured debts, and the debtor needs to file chapter 13 for some important reason, such as catching up on past due mortgage payments over a period of years. If the debtor files a chapter 7 case first, he will not get much time to get current on his mortgage, but he will probably get a discharge of his unsecured debts about 100 days after filing the chapter 7. Presto, the debtor is no longer over the debt limits for chapter 13. Once the chapter 7 is discharged, he can file a chapter 13 case. Now a chapter 13 plan can be used to do a long-term cure of his mortgage arrears.

Another example of a situation which might call for two bankruptcy filings is when the debtor has substantial non-dischargeable debts, such as student loans or back taxes owed for the past three years, and where the debtor also has substantial unsecured debts which can be discharged in a chapter 7. If a chapter 13 case is filed first, there will many creditors involved in the case with large claims for money. Some of them might be inspired to examine the debtor’s budget with a magnifying glass in an effort to induce the court to order a large, possibly unaffordable, monthly chapter 13 payment. Filing a chapter 7 case first means most of these creditors will have their claims discharged; the subsequent chapter 13 case will then have only a few creditors involved. These will be likely be creditors whose claims were non-dischargeable anyways, and whose claims were the entire motivation for the chapter 13 in the first place. Now, when the chapter 13 is filed, all claims are to be paid in full and no creditor is likely to object to the chapter 13 plan.

There are numerous situations where filing more than one bankruptcy can be advantageous. It is important to remember that the law limits how often a debtor can receive a discharge, but it rarely limits the ability to file the bankruptcy and obtain the benefits of the stay of collection activity.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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