Can You File Multiple Chapter 11 Bankruptcies?
When it comes to Chapter 7 and Chapter 13 bankruptcies, there are strict limits on how many times you can file for bankruptcy. Usually, it’s around 7 years, although that can vary depending on the circumstances. But regardless of the circumstances, you are often limited to waiting a significant amount of time before you can refile.
No Time Limit With Chapter 11
But there is no time limit that you have to wait before filing another Chapter 11 bankruptcy. This is one big benefit that Chapter 11 affords over other kinds of bankruptcy.
And before you think of multiple bankruptcies as being irresponsible, remember that we often don’t know what happens in life.
You could file for bankruptcy today, get your discharge, and end up in the hospital, with huge medical bills tomorrow. Your business could file for Chapter 11, reorganize and get a fresh start, only to have a global pandemic hit tomorrow, putting you back into debt.
Some Restrictions on Refiling
You can generally file for Chapter 11 again, at any time after your previous Chapter 11 case is over. The only restriction is that you may have to wait 180 days to refile, if your previous bankruptcy was dismissed for the failure to obey a court order. This can happen when paperwork isn’t filed, or when the court orders that your business take a certain action as part of reorganization, but the business does not comply.
There is one catch to the multiple refiling privilege in Chapter 11 bankruptcy. If your company received a discharge of debts in your previous Chapter 11 you do have to wait 8 years before you refile, much as you would have to wait with a Chapter 7. However, many companies that file Chapter 11 reorganize and do not receive a discharge. In that case, they can refile at any time.
Another benefit of filing another Chapter 11 case is that the protections of the automatic stay come into effect again.
Showing Good Faith
All this isn’t to say that filing another Chapter 11 bankruptcy after completing one previously won’t be scrutinized.
A court will look to ensure that the second filing is being done in good faith — that is, that the filing is being done in compliance with the objectives set out in bankruptcy law. Different federal courts have often applied different standards to see whether a consecutive Chapter 11 is being filed in good faith.
And, you can expect more challenges from creditors than you had in the first bankruptcy.
Usually, a court will ask whether there are unforeseen circumstances that made complying with a previous reorganization plan impossible. If so, the second filing will be more likely to be accepted by the court.
Call the West Palm Beach bankruptcy lawyers at Kelley Fulton Kaplan & Eller at 561-264-6850 if your business is in financial trouble. Chapter 11 bankruptcy could help you.