July 12, 2021
Consumers who are unsuccessful in their first attempt at a Chapter 13 bankruptcy may want to try again later – but there are hoops you have to successfully jump through in the Bankruptcy Code in order to gain the protection of the automatic stay of debt collection actions that comes with filing. Without that stay in place, your creditors can still foreclose or collect on your debts, even if you’re in bankruptcy, so there’s really no point in filing.
Here’s what you should know if you want to try again, and it depends on how many bankruptcies have already been dismissed in the last year.
Filing a Second Bankruptcy Within One Year
If this would be your second case in a year, your automatic stay will only last 30 days, instead of the entirety of your case. To keep your stay going past 30 days, you must file a motion under Code section 362(c)(3) before those 30 days are up. The bankruptcy court will hold a hearing to where you will have to show that the filing of the new Chapter 13 is in “good faith” as to the creditor you are seeking to stay – usually a mortgage bank.
Your case will be presumed to not be filed in good faith as to any creditor if either of two circumstances are present:
Your previous Chapter 13 case was dismissed for any of the following reasons: you failed to file or amend any documents that were required by the court without a “substantial excuse”; you failed to make payments to a secured creditor during your case as required; or you failed to pay under your plan if it was confirmed; or
There’s been no “substantial change” in your financial or personal affairs since your last case was dismissed, or there’s not “any other reason” for the court to conclude that you’ll be successful in the new case.
This means that if your case was dismissed for any of those reasons in 1), you will have to show the bankruptcy court with “clear and convincing evidence” at your hearing that you are trying again in good faith. Also, you will need to show that your circumstances have substantially changed since your last go-around, and you’ll be successful this time in order to keep the stay in place past 30 days. Be prepared to show your bankruptcy attorney exactly how your finances or life has changed – perhaps with a new job, or new income or support from a family member.
And if any of your creditors moved to lift the stay in your previous case and its motion was either pending or successful (i.e., the stay was lifted), your filing of the second case is presumed not filed in good faith as to that creditor, regardless of whether any of the circumstances above are present.
Filing a Third (or More) Bankruptcy Within One Year
For debtors who had two or more bankruptcies dismissed in the last year, under Code section 362(c)(4) the stay doesn’t go into effect at all. You will have 30 days after filing your case to also file a motion asking the court to order the stay to go into effect. In other words, in this situation, the stay never goes into effect – you have to take action to get it at all, and you’ll have to prove your good faith to the court with clear and convincing evidence under the same standards discussed above.
Always Provide Documents
One wrinkle under either scenario is that “mere inadvertence or negligence” will not work as an excuse for why you failed to file or amend a document, unless that negligence was committed by the debtor’s attorney. So if your case was dismissed because you never responded to your attorney’s requests for documents or communications about your case, you probably won’t get the automatic stay in the next case.
The best course of action in any Chapter 13 bankruptcy is to come to your attorney prepared with all your financial information before you even file, and always respond to your attorney’s requests for documents. It could mean the difference between being able to file again and not, if you just can’t make your plan payments the first time around. And if you’re going to file again, be prepared to pay for motion practice and show your attorney – and the bankruptcy court – that your situation has seriously changed.