Two Things You Should Know About Filing Bankruptcy Back To Back

A chapter 7 bankruptcy can help wipe out quite a bit of debt, but some may still linger after you receive your discharge papers (e.g. certain tax debt). If you're still having trouble meeting your financial obligations, one option is to file a chapter 13 right after your chapter 7 case ends. However, here are two important restrictions the bankruptcy court will place on your case.

Delayed Second Discharge

To prevent people from abusing the bankruptcy system, the laws restrict how often petitioners can receive discharges. While you can file multiple bankruptcy cases in succession, your debts won't be discharged in successive cased until the mandated time period has passed. For instance, you won't be eligible for a second bankruptcy discharge until 8 years after your first case was resolved.

In a chapter 20 case—where a person files chapter 7 and then chapter 13—you won't be eligible for a second discharge until at least 4 years after your chapter 7 filing date. This means that if the case ends before that time has passed, you will be on the hook for any leftover debts that weren't paid.

Don't let this issue deter you, though. If you're able to accomplish your goals within that period of time (e.g. get caught up on the mortgage), then a discharge will be unnecessary; otherwise, you'll need to make sure you're making payments on your chapter 13 case for the entire four years if you want to eliminate additional debt.

Ineligible for Lien Stripping

One of the drawbacks of filing for a chapter 7 bankruptcy is you cannot strip liens from your property. If you reaffirm the debt so you can keep the property, you would still be responsible for all liens attached to it. With chapter 13, however, the court does allow lien stripping in cases where the value of the property is far less than that of the liens.

For example, you have a first mortgage of $300,000 and a second mortgage of $100,000, but your home is only worth $200,000. In a regular chapter 13 case, the court would void the second mortgage so you don't owe anything on it once the case concluded and the creditor won't be able to foreclose on your home for the unpaid debt.

Unfortunately, because of the restrictions on receiving a second discharge in a chapter 20 case, some courts have ruled petitioners are not eligible for lien stripping. Thus, once the follow-up chapter 13 case ends, you'd still be responsible for paying any and all liens on your property.

It's important to discuss these and other issues related to enacting a chapter 20 case with a bankruptcy attorney to ensure you understand all the benefits and disadvantages and plan accordingly. Contact a chapter 7 bankruptcy law service for assistance