A Word About the Effect of Prior Bankruptcy Filings

by Jeremy J. Cobb on Dec. 07, 2019

Bankruptcy & Debt Bankruptcy Bankruptcy & Debt  Credit & Debt 

Summary: Bankruptcy counsel frequently field questions from debtors who’ve previously filed bankruptcy. Sometimes this involves a prior case completed years ago, but more often it involves a debtor who has filed a recent case that was dismissed—often in connection with a chapter 13 case by reason of failure to confirm a plan or to make plan payments.

Bankruptcy counsel frequently field questions from debtors who’ve previously filed bankruptcy. Sometimes this involves a prior case completed years ago, but more often it involves a debtor who has filed a recent case that was dismissed—often in connection with a chapter 13 case by reason of failure to confirm a plan or to make plan payments.

Prior Dismissed Cases
A prior case changes the calculus for debtors filing subsequent cases in at least two regards. First, for “individual” (i.e., non-corporate) debtors, a previously dismissed case limits the duration of the automatic stay in certain subsequent cases. This is critical for debtors subject to state-court judgments because, during the pendency of the subsequent bankruptcy case, and, for cases involving a shortened stay rather than no stay, after expiration of the shortened stay, and before the debtor obtains a discharge, a judgment creditor is entitled to employ state-law collection remedies such as wage garnishment. This creates a problem for debtors seeking a fresh start, insofar as it impairs the debtor’s ability to move forward unanchored by the weight of past financial entanglements. The way around this is to file a motion to extend the automatic stay. This involves uncertainty (as the court may deny the motion) and a fair amount of work, and, if the motion is opposed, a hearing at which the court may question the debtor and counsel, as the statutory language requires inquiry into the “good faith” of the debtor. See 11 U.S.C. § 362(c).

Prior Cases in Which the Court Granted a Discharge
A second, and more permanent, consequence of a prior case involves prior cases in which the court granted the debtor a discharge. Such cases preclude the debtor’s eligibility to obtain a discharge in certain subsequent cases. A discharge is a court order freeing the debtor from personal liability as to all debts subject to discharge and voiding certain judgments. See 11 U.S.C. § 524. A debtor may not obtain a discharge in a subsequent case filed within a certain period—measured in years—after the filing of a previous case in which a discharge was granted. These effective waiting periods, calculated filing date to filing date:

  1. Subsequent Chapter 7 Case:
    • After a chapter 7 or 11 case in which a discharge was granted: per 11 U.S.C. § 727(a)(8), 8 years.
    • After a chapter 12 or 13 case in which a discharge was granted: per 11 U.S.C. § 727(a)(8), 6 years unless the debtor paid 100% of allowed unsecured claims, or 70% of such claims if “the plan was proposed by the debtor in good faith, and was the debtor’s best effort.”
  2. Subsequent Chapter 13 Case:

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