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Repeated Chapter 7 Bankruptcy To Capture New Debts: One Creative Plan

By Jonathan Alper

Once you file Chapter 7 bankruptcy you are committed; you do not have the right to dismiss a Chapter 7 bankruptcy without court approval. If  soon after you file bankruptcy you incur a large debt which cannot be added to the case already filed you may be stuck with this debt.

I read an interesting exchange among some attorneys dealing with this problem. A debtor was hit with a huge, unexpected unsecured debt soon after they filed a Chapter 7 bankruptcy. The attorneys discussed a creative of way for the client to file a new bankruptcy to include the new debt.

The bankruptcy law prohibits filing a Chapter 7 bankruptcy within eight years of filing date of a previous bankruptcy in which the debtor obtained a discharge. One of the attorneys in this discussion suggested that the affected debtor intentionally not take the financial management class required of debtors after their petition is filed. The court will issue a reminder, and if the debtor still does not file a certificate that he completed the class the court will close the current bankruptcy case without issuing the debtor a discharge. As soon as that happens, the same debtor can file a new Chapter 7 bankruptcy including the new debt. Because no discharge was entered in the first bankruptcy the debtor will not be affected by the eight year time limit.

This seems to be a creative solution to this particular problem. I don?t know if the same solution would work to solve other issues such as the debtor inheriting money within six months after filing bankruptcy. In that type of situation I think the trustee would find a way to keep the case open and capture the money regardless of whether the debtor completes his education requirements.

Full post as published by Florida Bankruptcy Law on March 15, 2011 (boomark / email).