How Soon Can You File Chapter 13 After Chapter 7 Bankruptcy? | Bankrate (2022)

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Bankruptcy is a way to deal with mounting debts you can no longer manage. Once you’ve opted for this approach to wiping out debts, there are limits surrounding when you can file again. If you’ve used Chapter 7 bankruptcy specifically to discharge debts in the past, you must wait eight years before filing another Chapter 7 case.

That doesn’t mean you’re out of options if you’re facing debt again. Chapter 13 bankruptcy, often referred to as a wage earner’s plan, is another potential route to take, and you only have to wait four years to file after filing Chapter 7.

(Video) How Many Times Can You File for Bankruptcy?

What is Chapter 7 bankruptcy?

Chapter 7 bankruptcy allows you to become debt-free through what’s often referred to as a liquidation process. When using this approach, your debt is discharged and your nonexempt property is typically sold with the proceeds distributed to creditors.

Though it varies by state of residency, personal possessions that may be considered nonexempt and thus sold to cover your debts could include your home, pension, car, personal belongings, coin collection and even jewelry. Each state has a set of its own exemptions, and in some cases, you’re allowed to choose between your state exemptions and federal bankruptcy exemptions laid out by Congress.

Chapter 7 debts

In a Chapter 7 bankruptcy, your debts are divided into two major categories: secured and unsecured debts.

  • Secured debts: These are debts secured by an asset such as a home mortgage or a car loan. When filing for Chapter 7 bankruptcy protection, you are released from any obligations or liability with regard to secured debt — for example, the mortgage of your property. But bear in mind that the creditor still has the right to take back the property. This means that they could foreclose on your home or repossess your car.
  • Unsecured debts: The term “unsecured” refers to such debts as medical bills, lawsuit judgments and credit card balances. Like secured debts, you are released from any liability on unsecured debts as well—meaning you don’t need to pay these debts. Instead, unsecured debts will be paid from the proceeds of the sale of any nonexempt assets you own. These debts will be paid in order of priority.
  • Priority debts: Some debts cannot be discharged when filing under Chapter 7. These are known as priority debts which include child support, spousal support, money you owe to employees and tax debts. Priority debts are also repaid first from the proceeds of your assets during the bankruptcy process.

What is Chapter 13 bankruptcy?

Chapter 13 bankruptcy is a way to reorganize your debt. It involves repaying none, some or all of your debt over the course of three to five years. One important difference between Chapter 13 and Chapter 7 bankruptcy is that in Chapter 13, your debts aren’t discharged and you’re still liable to pay them.

With Chapter 13, most or all of your creditors are lumped together into one large pool. You then make payments each month to a lawyer — called a trustee — who’s assigned to your case. The trustee distributes your payment to the creditors.

(Video) How to Buy a House After Filing Chapter 7 & Chapter 13 Bankruptcy (THINGS YOU NEED TO KNOW)

“In Chapter 13, you can reduce the amount owed on secured loans, reduce interest rates, re-amortize loans for a lower monthly payment, remove certain liens, extend the time to pay back taxes, reduce the amount owed on unsecured loans sometimes down to zero and legally break leases,” says bankruptcy attorney Dai Rosenblum of Butler, Pa. Because a Chapter 13 filing can extend up to five years, Rosenblum says many people use it to catch up on their mortgage.

When you proceed with a Chapter 13 case, you must file a plan detailing how some, or all, of the debts will be repaid over time. In addition, you or your attorney, in conjunction with the trustee for your case, will determine a reasonable amount that you can afford to pay back to creditors. That amount is based on your assets, monthly income and monthly expenses.

How often can you file for bankruptcy?

The frequency of applying for bankruptcy depends on which type of bankruptcy you’re filing, something known as the 2-4-6-8 rule. Here’s a breakdown:

  • Filing Chapter 13 after Chapter 13: two years.
  • Filing Chapter 13 after Chapter 7: four years.
  • Filing Chapter 7 after Chapter 13: six years.
  • Filing Chapter 7 after Chapter 7: eight years.

Filing Chapter 13 immediately after Chapter 7 is also referred to as Chapter 20 bankruptcy. You won’t receive a discharge when filing Chapter 20, since you aren’t waiting the full four years between Chapter 7 and Chapter 13, but this type of filing could give you the time you need to pay down debt.

How soon can you file for Chapter 13 after Chapter 7 bankruptcy?

In order to get debts discharged through Chapter 13, you must wait four years after filing a Chapter 7 bankruptcy.

(Video) How Many #Times Can you #File #Bankruptcy?

You can file for Chapter 13 before four years if no debts were discharged in the Chapter 7 filing, but if you had debts discharged in Chapter 7 and want to have debts discharged in Chapter 13, you must wait four years.

Should I file for Chapter 13 after filing for Chapter 7?

If you file Chapter 13 at least four years after filing Chapter 7, you can have a very low monthly Chapter 13 payment plan and receive a full discharge of all remaining balances after you complete the three- to five-year plan. For example, you could pay as little as $100 a month for three years inside of Chapter 13, paying very little to your creditors and yet still discharging the remaining balances owed.

“This may be a good option for people who have student loan debt, certain types of income tax debt and child support payments to make,” says Sean Fox, president of Freedom Debt Relief. “These things cannot get discharged in a Chapter 7 bankruptcy.”

When is filing for Chapter 13 after Chapter 7 a good idea?

Here are some common reasons you might file for Chapter 13 after filing for Chapter 7:

  • Back taxes: If you discharge all your debts but still have back taxes that weren’t dischargeable, Chapter 13 will give you five years to pay those taxes.
  • Student debt: You may also use the five years provided under Chapter 13 to pay back items such as student debt or alimony arrears that weren’t discharged in your Chapter 7 case. “If you have large amounts of student loans, filing for Chapter 13 allows you to avoid wage garnishments,” says Rosenblum. “Rather than making your regular student loan payment, you make your Chapter 13 plan payment, which will be lower.”
  • Catch up on mortgage payments: A Chapter 7 bankruptcy allows the holder of your mortgage to foreclose, so you may want to consider filing for Chapter 13 to give yourself more time to catch up on your mortgage payments.
    Under a Chapter 7 bankruptcy, generally there is no option present to help catch up past due payments on secured debts such as mortgages or vehicle loans,” says Jeffrey Arevalo, financial expert at Greenpath Financial Wellness. Filing for Chapter 13 in this scenario can help prevent a foreclosure sale by setting up a repayment plan through the court for the arrears.”
    Typically, under a Chapter 13 bankruptcy, you’re allowed to hold onto the property that you’re making payments on.
  • Lien stripping: This is the process of eliminating junior liens like second mortgages. Not all courts allow this, so consult a bankruptcy professional to see if this makes sense for your situation.

The bottom line

Bankruptcy can be a reasonable approach to resolving debt, but keep in mind that this approach doesn’t discharge or eliminate all kinds of debt. Alimony and child support, for example, aren’t dischargeable through the bankruptcy process, nor are income taxes that are less than three years overdue. Student loans — one of the most significant debts Americans face — are also not dischargeable.

(Video) Chapter 13 Bankruptcy Explained | Step by Step

Learn more:

  • 6 ways to bounce back from bankruptcy
  • Getting a mortgage after bankruptcy: What to know
  • Debts that can’t be wiped out in bankruptcy

FAQs

How long do you have to wait after a Chapter 7? ›

Filing a Chapter 7 after a previous Chapter 7 discharge (8 years). For Chapter 7 bankruptcy filings, you must wait eight years from the filing date of your previous petition. Filing prematurely before those eight years have expired, you will not be granted a discharge.

How many times can I file bankruptcy in Illinois? ›

People often think there is a limit on how many times you can claim bankruptcy in Illinois, but this is not the case. The truth is that you can file as many times as you need it, as long as you comply with the legal conditions placed on refiling, such as certain waiting periods.

How often can you file Chapter 13 in Illinois? ›

Chapter 13 to Chapter 13 Bankruptcy: At a minimum, two years must have elapsed after the last Chapter 13 discharge date in order to file for another Chapter 13 bankruptcy.

What if my income goes up during a Chapter 13? ›

An Increase in Income During Chapter 13

The court will give you three to five years to pay your debts on a set schedule rather than the original rate determined.

How long before Chapter 7 is off credit report? ›

A Chapter 7 bankruptcy can stay on your credit report for up to 10 years from the date the bankruptcy was filed, while a Chapter 13 bankruptcy will fall off your report seven years after the filing date. After the allotted seven or 10 years, the bankruptcy will automatically fall off your credit report.

How much cash can you keep when filing Chapter 7 in Illinois? ›

Illinois law also gives each individual the right to exempt up to $4,000 in equity for any other personal property, including cash or money in the bank. If a husband and wife file jointly for bankruptcy, each spouse is entitled to claim these exemptions as well.

Can I exclude a credit card from Chapter 7? ›

No matter how important the card might be, excluding debt is not an option when you file for Chapter 7 bankruptcy. Bankruptcy law requires you to list all of your debt on your bankruptcy petition, without exception. In other words, if you owe a creditor money, the creditor must appear on your petition.

What assets are exempt from bankruptcy in Illinois? ›

Personal Property Exemptions
  • necessary clothing.
  • bible, school books, family pictures.
  • health aids.
  • personal injury recoveries up to $15,000.
  • wrongful death recoveries needed for support.
  • proceeds from sale of exempt property;
  • Illinois College Savings Pool or ABLE accounts (exceptions apply)
18 Mar 2022

Can I be denied Chapter 13? ›

Chapter 13 Can Be Denied if the Bankruptcy Process is Not Followed. Under relevant bankruptcy law, a debtor should enroll and successfully finish a credit counseling course from an institution approved by the United States Trustee's Office. Otherwise, it is likely the bankruptcy case will not push through.

Can I exclude a credit card from Chapter 13? ›

Even if you don't owe a balance on a credit card, you are still required to include it in your bankruptcy papers. When you submit your bankruptcy petition, all contracts will be canceled, including credit cards, leases, and secured car loans.

Does Chapter 13 discharge mortgage debt? ›

Chapter 13 bankruptcy allows you to catch up on missed mortgage or car loan payments and restructure your debts through a repayment plan. When you complete your plan, you will receive a Chapter 13 discharge that eliminates most of your remaining debts.

Can I put money in savings while in Chapter 13? ›

If Your Income Improves

If the improvement in your income is 10 percent or more, you are obliged to contact your bankruptcy trustee and inform him of your change in circumstances. Below that amount, and you can save or spend the extra disposable income without informing the trustee.

What can I not do while in Chapter 13? ›

Also do not not incur debt, use credit, credit cards, or enter into leases while in Chapter 13 without Bankruptcy Court approval, except in the case of an emergency for the protection and preservation of life, health or property. Contact your attorney if you need to sell property or incur debt.

Can I keep my tax refund in a Chapter 13? ›

Federal Tax Refunds During Bankruptcy

You can receive tax refunds while in bankruptcy. However, refunds may be subject to delay or used to pay down your tax debts.

How much will credit score increase after Chapter 7 falls off? ›

How Much Will Your Credit Score Increase After Chapter 7 Falls Off Your Credit Report? When a chapter 7 falls off your report, you can expect a boost of around 50–150 points on your credit score.

How do I get my credit score to 800 after Chapter 7? ›

How to Get an 800 Credit Score
  1. Pay Your Bills on Time, Every Time. Perhaps the best way to show lenders you're a responsible borrower is to pay your bills on time. ...
  2. Keep Your Credit Card Balances Low. ...
  3. Be Mindful of Your Credit History. ...
  4. Improve Your Credit Mix. ...
  5. Review Your Credit Reports.
12 Mar 2022

Will my credit score go up after Chapter 7 discharge? ›

Your credit scores may improve when your bankruptcy is removed from your credit report, but you'll need to request a new credit score after its removal in order to see any impact. Credit scores are not included in credit reports. Rather, scores reflect what is in your credit report at the time the score is calculated.

Do they freeze your bank account when you file Chapter 7? ›

Some banks will freeze your account as soon as they find out about the bankruptcy. They do it to protect the assets for creditors. In most cases, you or your attorney can ask the bankruptcy trustee to contact the bank and release the freeze. The trustee will likely do so if you're entitled to the funds.

Does the trustee monitor your bank account? ›

While your trustee will most likely periodically check all of your financial accounts such as your bank accounts, in order to ensure that you have enough money to continue making your bankruptcy payments, they are not permitted to touch any of your funds, other than the funds which are allocated for your secured loan ...

Can I keep my savings in Chapter 7? ›

You can keep cash in Chapter 7 bankruptcy if it qualifies as an exempt asset under bankruptcy exemption laws. You don't have to give up everything when you file for bankruptcy. You can keep any property that qualifies as an exempt asset—including cash.

What is hardship relief? ›

Hardship programs are lender policies that can provide some relief for people who are experiencing financial difficulty. The details of these programs vary by lender and loan type, but they typically involve an agreement between you and the lender.

What assets can I keep in Chapter 7? ›

Bankruptcy Exemptions: What Property Can you Keep In Chapter 7 Bankruptcy?
  • Houses, Cars, and Property Encumbered By a Secured Loan. ...
  • Household Goods and Clothing. ...
  • Retirement Accounts. ...
  • Money, Jewelry, and Other Property.

What debts are not dischargeable in Chapter 7? ›

Debts dischargeable in a chapter 13, but not in chapter 7, include debts for willful and malicious injury to property, debts incurred to pay non-dischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings.

Can you keep your car if you file bankruptcy in Illinois? ›

If a person wants to keep the car and still needs to pay it off, then they must continue to pay for the car throughout the bankruptcy. However, the law provides multiple options for making this payment. First, a filer may choose to make a lump sum payment to the lender equal to the car's current value.

How much debt do you need to file bankruptcy in Illinois? ›

You can file for Chapter 13 bankruptcy as long as: Your unsecured debts are less than $2,750,000, or.

What assets are protected from creditors in Illinois? ›

There are certain protected things that a creditor cannot take, such as:
  • Necessary clothing.
  • Income from: ...
  • Take home pay up to $540 per week after all state and federal taxes have been taken out.
  • $15,000 worth of equity in the home you live in (including a mobile home or condominium). ...
  • A vehicle (car, truck, van, etc.)
18 Mar 2022

What happens if I open a credit card during Chapter 13? ›

A stipulation in Chapter 13 bankruptcy law states that you, as a debtor, are not allowed to increase any debt without receiving the permission of your bankruptcy trustee. If you do apply for a credit card, your bankruptcy payment plan will be canceled and the bankruptcy proceedings will be stopped.

Why do most Chapter 13 bankruptcies fail? ›

In most cases, failure is due to one of several reasons: Life circumstances. Not having the guidance of an experienced bankruptcy attorney. Over-ambition.

Which one is better Chapter 7 or 13? ›

Most people prefer Chapter 7 bankruptcy because, unlike Chapter 13 bankruptcy, it doesn't require you to repay a portion of your debt to creditors. In Chapter 13 bankruptcy, you must pay your creditors all of your disposable income—the amount remaining after allowed monthly expenses—for three to five years.

What happens if you forgot to list a creditor in Chapter 7? ›

Asset and No-Asset Cases in Chapter 7

Any debt you fail to list in an asset case won't be discharged. If, however, yours is a no-asset Chapter 7 bankruptcy (there's no money to repay creditors), the debt still might be discharged.

Do you have to include everything in Chapter 13? ›

You must list all of your debts in your bankruptcy petition without exception. Most people have at least one debt they don't want to erase (discharge) in bankruptcy, and many think they can pick and choose the debts included in the case.

Do you have to include everything in Chapter 7? ›

It's common to want to pick and choose the debts you include in a Chapter 7 case, but it's not allowed. You must transparently list everything you owe, including obligations to your grandmother, best friend, ex-spouse, or business partner. The rule prevents filers from: unfairly choosing which creditors to pay, and.

Can you have a credit card while in Chapter 13? ›

Yes. Credit cards, vehicle loans, and even residential mortgage loans can be obtained during a chapter 13 case. The most difficult of the loans is the mortgage loan but it is possible after the bankruptcy case has been pending for a period of time.

What does Chapter 13 Wipe? ›

The majority of debts discharged in Chapter 13 bankruptcy are nonpriority unsecured debts. Credit card balances, personal loans, medical bills, and utility payments fit here.

What debts are not dischargeable in Chapter 13? ›

Debts not discharged in chapter 13 include certain long term obligations (such as a home mortgage), debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated ...

Can Chapter 7 be removed from credit before 10 years? ›

Can Chapter 7 Bankruptcy Be Removed From My Credit Report Before 10 Years? Chapter 7 bankruptcy stays on your credit report for 10 years. There's no way to remove a bankruptcy filing from your credit report early if the information is accurate.

What happens after discharge in a Chapter 7? ›

The Trustee's Final Report

Once all assets have been liquidated, and claims paid, the trustee will file a Final Report with the court. Unless any party objects to the final report, the court will issue a final decree, and the clerk of the court will close the case.

Is it better to file a Chapter 7 or 13? ›

Most consumers opt for Chapter 7 bankruptcy, which is faster and cheaper than Chapter 13. The vast majority of filers qualify for Chapter 7 after taking the means test, which analyzes income, expenses and family size to determine eligibility.

What happens after you file Chapter 7? ›

A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor's nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code.

How do I get my credit score to 800 after Chapter 7? ›

How to Get an 800 Credit Score
  1. Pay Your Bills on Time, Every Time. Perhaps the best way to show lenders you're a responsible borrower is to pay your bills on time. ...
  2. Keep Your Credit Card Balances Low. ...
  3. Be Mindful of Your Credit History. ...
  4. Improve Your Credit Mix. ...
  5. Review Your Credit Reports.
12 Mar 2022

How can I get my credit score to 700 after Chapter 7? ›

By continuing to pay all of your bills on time, and properly establishing new credit, you can often attain a 700 credit score after bankruptcy within about 4-5 years after your case is filed and you receive a discharge.

What is a good credit score? ›

Although ranges vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.

Will my credit score go up after Chapter 7 discharge? ›

Your credit scores may improve when your bankruptcy is removed from your credit report, but you'll need to request a new credit score after its removal in order to see any impact. Credit scores are not included in credit reports. Rather, scores reflect what is in your credit report at the time the score is calculated.

What happens if you forgot to list a creditor in Chapter 7? ›

Asset and No-Asset Cases in Chapter 7

Any debt you fail to list in an asset case won't be discharged. If, however, yours is a no-asset Chapter 7 bankruptcy (there's no money to repay creditors), the debt still might be discharged.

How long does Chapter 7 affect your credit score? ›

In a Chapter 7 bankruptcy, also known as a liquidation bankruptcy, there is no repayment of debt. Because all your eligible debts are wiped out, Chapter 7 has the most serious effect on your credit, and will remain on your credit report for 10 years from the date it was filed.

Which is worse for your credit Chapter 7 or 13? ›

Chapter 7 and Chapter 13 bankruptcy both affect your credit score the same – having a Chapter 13 bankruptcy on your credit report will not be any better for your score than a Chapter 7.

Can I get a credit card during Chapter 13? ›

Yes. Credit cards, vehicle loans, and even residential mortgage loans can be obtained during a chapter 13 case. The most difficult of the loans is the mortgage loan but it is possible after the bankruptcy case has been pending for a period of time.

How long is Chapter 13 on credit? ›

A Chapter 13 bankruptcy stays on your credit reports for up to seven years. Unlike Chapter 7 Bankruptcy, filing for Chapter 13 bankruptcy involves creating a three- to five-year repayment plan for some or all of your debts. After you complete the repayment plan, debts included in the plan are discharged.

How much cash can I keep in Chapter 7? ›

If you declare bankruptcy, will you lose literally every dollar that you have in your savings? The answer is no: some cash can be exempted in a Chapter 7 case. For example, typically under Federal exemptions, you can have approximately $20,000.00 cash on hand or in the bank on the day you file bankruptcy.

What are exempt assets in Chapter 7? ›

Property That Is Exempt

Reasonably necessary clothing. Reasonably necessary household goods and furnishings. Household appliances. Jewelry, up to a certain value.

How much do you have to be in debt to file Chapter 7? ›

How much debt do I need to file for bankruptcy? There is no minimum or maximum amount of debt for Chapter 7 bankruptcy.

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