Multiple Bankruptcies: How Often Can You File?

The good news – if it can be called that – is there is no law against filing for bankruptcy twice, thrice or however many times you reach a point of financial desperation and want a legal way out.

Bankruptcy law does limit how often you can file based on the type of bankruptcy you previously filed and the date of your last discharge.

The rules are a little complicated, so let’s look at what you need to know.

How Often Can You Declare Bankruptcy?

While there’s no law restricting how often you can file for bankruptcy, a few practical matters can limit your odds of approval.

First, if your filings are abusive or for the sole purpose of delaying or frustrating your creditors, a bankruptcy judge can prevent you from moving forward. A judge may dismiss your case with a “one year bar,” for example, restricting you from filing a bankruptcy petition within the next year.

Also, while you can file for bankruptcy as many times as you need, the bankruptcy code restricts how often you can obtain a bankruptcy discharge. Each type of bankruptcy filing has a mandated waiting period between filings, should you want to explore another bankruptcy. You won’t receive a second discharge until that specified time has passed.

Should you file bankruptcy if you can’t get your debts forgiven? There are many reasons to say yes. You may want to file so you can establish a payment plan, repay mortgage arrears, or catch up on missed car payments, to cite three examples.

Whether you’re eligible for a discharge in your second (or third) bankruptcy case depends on whether you received a discharge in your first case, the type of discharge you received and what type of case you’re filing this time.

Time Limits Between Bankruptcy Filings

*Assumes that the first filing was approved.

If a judge tosses out your second filing or if a waiting period halts your filing, you have alternatives to bankruptcy. (These options are also available before any filing.) Participating in a credit counseling session with a nonprofit agency is a good place to start. Counselors will lay out your options, which might include a debt management plan (DMP). A DMP is far less harmful to your credit score than bankruptcy, but it can be a difficult program to qualify for.

Another benefit of debt management is that you can quit the program at any time. You might be able to find much needed debt relief through a DMP while you wait out the bankruptcy time limit.

How Many Times Can You File Bankruptcy?

Although you have time limits between bankruptcy filings, there’s no limit on the number of times you can file. Theoretically, someone with faulty debt-management skills could file a dozen or more bankruptcies in their lifetime.

That would make for some tough financial sledding, but at least they might make the Guinness World Records for “World’s Lowest Credit Score.”

Refiling for Bankruptcy After a Dismissal

A bankruptcy “dismissal” sounds similar to a “discharge,” but there’s a big difference.

A discharge means you’ve met all the requirements set by the bankruptcy court and that you’re no longer on the hook for the applicable debts. Your case is closed.

Dismissal means your case was closed without your debts being eliminated. It’s as if you have never filed for bankruptcy. You’re back to square one. Your creditors can hound you again.

You can refile after a dismissal. How soon depends on why a judge dismissed your case. For instance, you must complete a credit counseling course from an approved agency within 180 days before filing for bankruptcy.

A debt counselor can give you an idea whether there’s a better alternative to bankruptcy, such as enrolling in a DMP. If you push forward with a bankruptcy case, you must prove you completed the counseling course.

Failure to comply will result in an automatic court dismissal. If you scramble and pass the course, you likely would be cleared to refile immediately.

If it looks like you’re trying to game the system, however, you’ll have to wait 180 days to refile. The bankruptcy code defines that gaming as “willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case.”

Examples of gaming the system:

• Destroying financial records
• Lying to the court
• Concealing or transferring property to defraud creditors

So, if you act in good faith, you should be able to refile quickly.

But whether you’re new at bankruptcy or have a dozen of them on your financial record, the first thing you should do is find a bankruptcy attorney (which will cost you money) or talk to a certified credit counselor (which won’t cost anything) to secure professional advice.

How to Avoid Filing Bankruptcy Again

In many situations, bankruptcy is one of several options you can take to repair your financial problems. There are almost always alternative solutions to bankruptcy.

Tactics and tips to investigate first include negotiating better terms on your debt, from credit card interest rates to lower-interest credit cards to loan adjustments.

If it makes sense, you can also use your savings to pay off at least part of your debt. Once you do that, you might strengthen your position to negotiate better terms on the debt that’s left.

If you own your home, you might use your home equity to pay down or pay off your other debts. In some cases, mortgage interest is a deduction on your annual federal tax return.

Similarly, you could leverage your 401(k) or other retirement funds as a source for debt repayment. However, many financial advisors cringe at this idea because they don’t like sacrificing the future to make the present day prettier.

Other solutions include a DMP, debt consolidation and debt settlement.

Debt Settlement vs. Bankruptcy

Debt settlement, also known as debt negotiation or debt arbitration, you find a third party to negotiate with your creditors to lessen the amount of money you owe. Creditors typically accept 40% to 70% of your balance to get your account paid off.

However, you will find yourself on a budget and paying the debt settlement company a set amount each month as you repay your new balance.

Debt settlement is preferable to bankruptcy in the long run. Although your credit score will tumble and you will have to repay your creditors, your long-term financial status will be far better than if you take the bankruptcy route.

Debt Consolidation vs. Bankruptcy

When you choose debt consolidation, you will trade monthly payments to multiple creditors for one monthly payment. Debt consolidation involves packaging several debts into one.

Two downsides of debt consolidation are that you usually can’t reduce how much principal debt you have, and you often can’t repackage your debts into one with a lower interest rate. Debt consolidation is just a reorganization.

Like debt settlement, debt consolidation is preferable than bankruptcy.

Consequences of Filing for Multiple Bankruptcies

If you evaluate all the options of dealing with your personal debt and conclude that another bankruptcy is likely in your future, you should know the consequences of what that means.

Multiple bankruptcies bring diminishing returns. A second or third Chapter 7 filing lightens the effect of two key components of that bankruptcy type: discharges and automatic stays. Your creditors still could sue for their money, and they could continue calling and writing to you for it. You also may not get an automatic stay, which pauses any collection attempts.

So, serial bankruptcies lessen the effects of bankruptcy protections.

The Bottom Line

You can file for any type of bankruptcy more than once, but you will have to navigate a waiting period in each case. Waiting periods vary from 3-8 years, although in some circumstances you may only have a two-year wait.

Before you file any type of bankruptcy, you should consider your other financial remedies to your debt problem. Debt management programs, debt settlement, and debt consolidation are three of the most popular, but you can also tap your home’s equity, borrow from your retirement plans or find ways to lower your credit card interest rate.

Multiple bankruptcy filings can bring diminishing returns, especially in legal protections. Sometimes your creditors are still allowed to chase you for their money.

Before you make a final decision on your strategy, consult with a qualified credit counselor so you can understand the ease of each option and the qualifications of them. You will make the call, but at least you’ll have an unbiased view of all the facts.