Can I File for Chapter 7 and Chapter 13 at the Same Time?

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“Sometimes one bankruptcy isn’t enough.” – George Veitengruber, Esq.

As we’ve discussed before on our blog, there are time limitations put into place that prevent a debtor from receiving a second chapter 7 discharge unless at least eight years have passed since their first chapter 7 discharge. You also cannot be granted a chapter 13 discharge unless at least four years have passed since you filed for chapter 7, so where on earth can we possibly be going with this?

Bankruptcy law disallows back to back bankruptcy discharges in order to avoid people abusing the bankruptcy system. With no restrictions, any debtor could theoretically bounce from one bankruptcy discharge to another, and that wouldn’t be fair to creditors, nor would the debtor learn any valuable lessons regarding their finances.

There are situations, however, wherein a debtor can file consecutive bankruptcy cases, but only when the desired outcome is not a second discharge.

Most people associate bankruptcy with ridding themselves of all of their debt, the closest thing to a financial “do-over” that exists in the real world. While a bankruptcy discharge can indeed be akin to a capital tabula rasa, giving debtors a clean slate isn’t the only function of the bankruptcy system.

For example, one of the most beneficial (and immediate) effects of filing for any type of bankruptcy is the automatic stay:

Automatic stay \noun\  a judicial order known as an injunction that halts any and all lawsuits as well as actions by creditors attempting to collect money from someone who has filed for bankruptcy

Many people file for chapter 7 when they have a significant amount of unsecured debt.

Unsecured debt \noun\ a debt that doesn’t have any collateral attached to it that a creditor could take for payment if the debtor defaults
Examples of unsecured debt: credit card debt, student loans, utility bills, medical bills, some taxes, and most personal loans

In filing for chapter 7 relief, many or all unsecured debts can be discharged at the end of the bankruptcy case, as long as the applicant meets the filing requirements and no fraud is at play.

Frequently, a discharge of all unsecured debts so significantly reduces the financial strain on the debtor that they are then able to resume paying their monthly living expenses without difficulty.

Sometimes, though, even after a chapter 7 wipes out a huge chunk of their debt, some people are still left facing a significant amount of non-dischargeable debts.

Non-dischargeable debt \noun\ money owed that can almost never be discharged via any type of bankruptcy proceeding
Examples of non-dischargeable debt: child support, alimony, student loans, income tax debt

Still other people, after filing for chapter 7 and receiving a discharge, are left with secured debt(s) that they want to continue making payments on in order to keep the property that secures the debt(s) in question.

Secured debt \noun\ a debt that has collateral attached to it that a creditor could take for payment if the debtor defaults
Examples of secured debt: home mortgage, auto loan, valuable personal property loan (mechanical equipment, furniture, tools, etc)

Whether the debtor is left with substantial non-dischargeable debt or secured debt(s) that hold important value (usually a mortgage and/or auto loan), filing for chapter 13 immediately after a chapter 7 discharge will allow for a reorganization of any subsequent arrears owed, allowing the debtor to bring the loan(s) current.

Veitengruber Law can navigate your path through multiple bankruptcies! If you thought your financial situation was too “messed up” to be fixed – think again. Even better – we want to help you. Please give our office a call if your debts have gotten out of control. Your consultation won’t cost you thing, so you’ve got nothing to lose.

Image credit: Alachua Cty

 

 

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