I am not a lawyer, I am a judgment broker). This article is only my opinion, about the laws I have read, and what I have learned. Nothing in any of my articles should ever be considered legal advice.
In my line of work, I often hear “My judgment debtor cannot go bankrupt” or “My judgment debtor cannot go bankrupt again”. There is very little that prevents a debtor from filing for bankruptcy protection as often as they wish. However, those that file more often than the law allows, will have eventually have their request denied (dismissed).
Some debtors file for bankruptcy protection so often, they annoy the courts, and have been labeled “serial bankruptcy filers”. Here is a summary of some of the recent changes to laws to help thwart serial bankruptcy filers:
Serial bankruptcy filers will learn that their protection from creditors will now last only 30 days, if the debtor had previously filed for a (dismissed) bankruptcy within the preceding 12 months. Even better, there will be no bankruptcy allowed (and no protection at all from creditors) if the debtor had more than one previously dismissed bankruptcy within the preceding 12 months.
One loophole for serial bankruptcy filers, is that even if their Chapter 7 bankruptcy case was dismissed for abuse, and the debtor files again under a new chapter (for instance Chapter 13), the conventional protective stay from creditors remains.
If a debtor files Chapter 7 and their debts are discharged, usually another 8 years has to pass before a debtor can file BK again. Does that apply to any form of personal bankruptcy including Chapter 7 and 13, or can the debtor file Chapter 13 four years after a Chapter 7 discharge?
Yes, a petitioner can file one type of bankruptcy, and then another type within the 8 year period. The old name for this was the Chapter 20 bankruptcy. The idea is to wipe out all the debts that you can in Chapter 7, and then force the remaining creditors to accept a monthly payment plan from the court, with a chapter 13.
Another change, for serial bankruptcy filers is that debtors cannot file for a new bankruptcy case for 180 days, after a previous case was dismissed – if the dismissal was either because they willfully failed to comply with an order of the court, or if they agreed to a creditor’s request for relief from their automatic bankruptcy stay.
If you have a third-party claim, use the Judicial Council Form CM-180 to let the court know. Fill in the blanks, and attach a copy of your petition. This triggers an Order to Show Cause (OSC) re: dismissal in 180 days. If you are there in postjudgment, there will not be a “dismissal”, however it will put the BK on the state-court’s radar.
If anyone tries to do anything, just remind the clerk of the court that there is a stay in effect. No appearance is required. If the bankruptcy is dismissed or terminated, use Form CM-181 to let everyone know that the case is back “in play” and you can start your enforcement efforts again. Statutes of limitation that were tolled during the BK (not all statutes are tolled, like the amount of time to request attorney fees), now begin to run again to the time left.
If your debtor is a frequent bankruptcy filer, you could find the case numbers of their recent filings for bankruptcy (in all districts) and look for dismissals or terminations, and be prepared to present this information, should you choose to appear in court.
Bankruptcy is serious. The petitioner is legally presumed to be bankrupt 90 days prior to the date that their petition is filed. If a creditor takes a collection action even one day after the filing of a debtor’s bankruptcy, they have violated the automatic stay mandated by federal law. If you did not intentionally violate the bankruptcy stay, and return the money/release the levy, as soon as you learn about the bankruptcy, it will be hard for anyone to hold you liable for sanctions.
If you try to collect from the debtor at any time between the date they filed for bankruptcy protection, and when their case is either dismissed or terminated, you have violated their automatic stay. If you do this accidentally, return the money to the debtor immediately.
If it was an accident, and you return the money to the debtor as soon as you learn of their bankruptcy, you will probably be ok. If you do not return the money to the debtor after learning of their recent bankruptcy, you may be judged to have willfully violated federal law, and will be subject to paying massive sanctions, damages, and attorney fees (and will also have to return the debtor’s money.)
Once you receive notice of a bankruptcy, it does not matter if you have not already received the funds directly. For example, if you had the Sheriff levy the debtor’s bank account the day after they filed for bankruptcy, it is your duty to take any actions required to make sure the funds are returned to the debtor. In a levy situation, you would inform the Sheriff in writing of the bankruptcy, and ask them to return the funds to the debtor.
Because of bankruptcy hassles, costs, and risks of violating federal law, a debtor merely starting the process of filing for bankruptcy protection causes most creditors give up and walk away, and never look back.
Debtors know that most creditors will walk away when they file for bankruptcy. Possible violation of a debtor’s bankruptcy is something to be mindful of, however a smart creditor will monitor the debtor’s ongoing BK status. Unless the debtor is really very poor. In that case, why bother trying to collect at all?
Few creditors are savvy enough to look on PACER on a regular basis, to monitor the status of the debtor’s bankruptcy to see if it succeeds (their debts are discharged), or is dismissed or terminated (their bankruptcy attempt failed).
To bring a serial BK filer to the court’s attention, one can use PACER to monitor the financial paperwork, which the debtor is required to file with the court within 15 days of filing their petition. Note that some federal bankruptcy courts and judges do not want to hear about serial BK filers, and will not ban a debtor from filing for bankruptcy protection in their court. On the plus side, even then, the serial filer will eventually and eventually be denied.
One can appear at the 341 meeting of creditors. The deadline for filing any adversarial actions in bankruptcy court starts from the date of the first creditor’s meeting. The debtor’s paperwork may contain some helpful information, and maybe a few inconsistencies, which you can optionally explore during your 5-minute appearance at the 341 meeting of creditors.
The time limits for a debtor filing for bankruptcy again ranges between 2 and 8 years.
A debtor cannot get a discharge in a Chapter 7 bankruptcy case if the debtor previously got a Chapter 7 discharge within the past 8 years, or 6 years if they had previously filed a Chapter 13 case. The time periods in either case is measured from the filing dates, not the final results of the previous bankruptcy attempt. (See Federal Laws 11 USC 348a, and 11 USC 727a).
If the debtor had filed for a Chapter 7 bankruptcy case, they must wait for 4 years before filing again for a Chapter 13 bankruptcy. (See Federal Law 1328f1).
If the debtor filed for a Chapter 13 bankruptcy case, they must wait for 2 years before filing again for a Chapter 13 case. (See Federal Law 1328f2).
Debtors are not allowed to have two bankruptcies open or pending at the same time.
Finally, see 11 USC § 109 – “who may be a debtor”:
(g) Notwithstanding any other provision of this section, no individual or family farmer may be a debtor under this title who has been a debtor in a case pending under this title at any time in the preceding 180 days if –
(1) the case was dismissed by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case; or
(2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay provided by section 362 of this title.