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What Is the Waiting Period to File for Bankruptcy a Second Time?It is the season for spring cleaning, and many people who are sheltering in place now may have the time to go through piles of old documents. Perhaps some of those documents are related to a bankruptcy case that you filed in the past. This may make you wonder: Could you file for bankruptcy again if you needed to? As shown by the massive layoffs because of the pandemic, circumstances that are beyond your control can cause financial stress that limits your ability to repay your debts. Bankruptcy can work just as effectively for you as it did before, but there is a minimum waiting period before you can receive bankruptcy discharge again.

What Does the Waiting Period Mean?

There is no time limit to file for bankruptcy again, but you have to wait a few years before you can discharge your debt again. Most individuals choose between filing for Chapter 7 or Chapter 13 bankruptcy.  

Discharge is one of the most powerful bankruptcy tools because it allows you to clear your unsecured debt without having to repay all of it. You ideally want to have that tool available if you need to file for bankruptcy a second time. However, it may make sense to file a Chapter 13 bankruptcy without intending to discharge your debts if you need help repaying secured creditors or non-dischargeable taxes after a Chapter 7 case. While you may not be required to repay the secured debt, it may be necessary if you want to keep the secured property.

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Why You Should Not Withdraw from Your Retirement to Pay DebtsWhen you are going through a financial crisis, your focus is on meeting your immediate needs and not your long-term savings. The coronavirus outbreak is creating a financial crisis for the people who have lost their jobs or seen a reduction in their income. It is understandable to justify withdrawing money from your 401(k) if you need to pay your mortgage or a vehicle loan. The Coronavirus Aid, Relief and Economic Security Act (“CARES Act of 2020”) has made it easier for people to withdraw from their retirement accounts. People younger than 59 ½ years old will temporarily be allowed to withdraw up to $100,000 from their 401(k), 403(b) or Individual Retirement Account (IRA) without a 10 percent penalty or borrow up to $100,000 with a longer repayment period. Even though there is no penalty for withdrawing, this is still a taxable event, but the taxes can be paid over a three-year period, rather than all at once next year. However, you should consider other options, including bankruptcy, before you make a withdrawal that could jeopardize your retirement. You lose the time value of your invested funds working for you over a 20 or 30 year period.  

Relief for Consumers

The CARES Act of 2020 includes several provisions that may help you with your debts and personal expenses. Most people know about the one-time payout of $1,200 that most individuals will receive, but the law also:

  • Adds additional funds and weeks for unemployment
  • Provides foreclosure moratorium for 60 days
  • Allows people to forbear their federally backed mortgage payments for up to 12 months
  • Suspends payments on federally backed student loans until September 30th 
  • Excludes stimulus payments from their income if they file for bankruptcy
  • Extends the maximum repayment period for Chapter 13 bankruptcy plans that have been approved by the Court from five years to seven years

Some creditors have also shown some willingness to be flexible with their customers who have been financially affected by the coronavirus outbreak, such as delaying collection action or modifying loan agreements.

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How the Coronavirus Could Affect BankruptcyThe world is experiencing a global pandemic with the rapid spread of the coronavirus causing cases of COVID-19. Dozens of cases have been reported in Texas, even here in Frisco, and the number is likely to grow as more people are able to be tested. While the public health threat is the priority, there are also concerns about the economic impact it will have. Businesses around the world are shutting down to the public, and the stock market has dropped to historic lows. If the economic effects of the coronavirus pandemic cause you to fall behind on your debts, you may want to consider bankruptcy as a source of relief. If you have an ongoing bankruptcy case, you need to watch for how the pandemic may affect your case.

Virus Impact on Personal Finances

To prevent the spread of the virus, many offices, stores, and restaurants are closing – either voluntarily or by government mandate. Employees may be okay if they can work from home or their employer is willing to pay them during their time off. However:

  • Some workers are going unpaid or are having their payments deferred while their employers are closed.
  • Small business owners may see decreased revenues that hurt their personal finances.
  • There is no telling how long employers will continue to pay workers who are on leave.

People who live paycheck-to-paycheck or are desperately trying to keep up with debt payments may not be able to afford a gap in their income. Creditors may show more patience given the extraordinary circumstances but are not required to do so. If a creditor is threatening to repossess your property or file a lawsuit against you, filing for bankruptcy will put an immediate stop to it and allow you to manage your debts.

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What to Do if Creditors Disobey the Automatic StayFiling for bankruptcy provides relief in many ways, and one of the immediately noticeable ways is the automatic stay on creditors. After you have filed, creditors are legally required to stop contacting you or attempting to collect on their debt. This includes:

  • Calling you or sending letters
  • Foreclosing on or repossessing your property
  • Turning off your utilities
  • Garnishing your wages
  • Filing or continuing a lawsuit

The IRS is still allowed to send notices of tax deficiencies, and the automatic stay will not stop a court action that is trying to establish child support. Otherwise, you should stop hearing from creditors in a matter of days, if not immediately. If a creditor continues to harass you after you have filed for bankruptcy, you need to talk to your bankruptcy lawyer about how to stop the creditor and whether you should take legal action against them.

Determining Your Response

How you respond to a creditor continuing their debt collection action against you depends on whether the creditor knowingly violated the automatic stay. On your end, you can check whether you forgot to include the creditor in your bankruptcy filing, which would explain why they were unaware of the automatic stay. If the creditor is already listed in your bankruptcy, you need to notify them of the automatic stay and tell them to cease all communications and debt collection efforts. Your lawyer can prepare the message to make sure that the creditor can confirm your bankruptcy case. Warning the creditor will be enough to stop them in many cases. 

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A History of Bankruptcy Laws in the United StatesAs we celebrate Presidents Day, it is a good time to recognize how our bankruptcy laws have grown under different presidents. Our bankruptcy system is formed from federal laws passed by Congress and signed by presidents – all based on the belief that individuals and businesses should be able to eliminate debts that they are unable to repay. Before the existence of bankruptcy laws, debtors were powerless to stop creditors from seizing their properties or having them imprisoned for not paying their debts. Getting out of debt was often impossible unless you had wealthy or influential friends. A timeline of U.S. bankruptcy law shows that the principles of bankruptcy are older than the country itself. 

  • U.S. Constitution, 1787: The framers of the U.S. Constitution wrote a section that authorized the U.S. Congress to create federal bankruptcy laws. In the absence of federal laws, each state had its own laws on how bankruptcy should be administered.
  • Bankruptcy Act of 1800: The first attempt at a federal bankruptcy law came during the administration of President John Adams. The act was very different from the bankruptcy we know today. Only creditors could initiate bankruptcy, the system was exclusively for merchant debtors, and two-thirds of the creditors had to approve of discharge. The act was repealed in 1803, due to complaints of corruption associated with the law.
  • Bankruptcy Act of 1841: The next attempt at a federal bankruptcy law came during the early days of President John Tyler. The act greatly expanded bankruptcy protection so that it was available to all individuals and could be entered voluntarily. Federal courts, and not the creditors, would decide whether to discharge debts. However, the act was repealed in 1843, due to pressure from creditors.
  • Bankruptcy Act of 1867: The U.S. Congress passed a third bankruptcy act during the presidency of Andrew Johnson. This act introduced the idea of a restructured repayment plan that was a precursor to Chapter 13 bankruptcy. Bankruptcy filers were also allowed to choose between federal and state bankruptcy exemptions. The act was repealed in 1878, due to complaints that the law was being abused.
  • Bankruptcy Act of 1898: This act, passed during President William McKinley’s administration, was the basis for modern U.S. bankruptcy law. Among other new provisions, the act made it easier for debtors to obtain discharge at the end of their bankruptcies. The act has never been repealed, though significant portions have been revised and replaced.
  • Bankruptcy Reform Act of 1978: Major changes came to U.S. bankruptcy law during the presidency of Jimmy Carter. The reform act established the modern bankruptcy code, including the various chapters of bankruptcy. There have been various amendments to the bankruptcy act since then.
  • Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: President George W. Bush signed this law in April of 2005 and it became effective in October of 2005, making it much harder for individuals to discharge debts in Chapter 7 and to establish repayment guidelines for Chapter 13.

Contact a Frisco, Texas, Bankruptcy Attorney

Bankruptcy has come a long way since the founding of the U.S., and many of its changes have given more power to individuals who owe debts. A Denton County bankruptcy lawyer at The Page Law Firm can utilize the numerous bankruptcy tools that the U.S. offers to help with your case. To schedule a free consultation, call 214-618-2101.

Source:

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National Association of Consumer Bancruptcy Attorneys State Bar of Texas
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