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Don’t Have Two Bankruptcies Open At The Same Time!

Posted on Jun 1, 2012 in Bankruptcy, Bankruptcy Information, Bankruptcy Legislation, Bankruptcy procedures, Chapter 11, Chapter 13

An e-mail recently circulated from another state.  It asked what might happen in a case that had just opened.  It seems that the filer had just filed a Chapter 7 bankruptcy in the past year.  The debtor was about to be discharged, or released, from bankruptcy, with the case to be closed shortly.  However, just before the debtor received the discharge, they filed a petition for Chapter 13 bankruptcy.

Different states might have ways of handling this situation.  But from the responses received, it is pretty clear that this filer could be facing trouble for two big reasons.  First, when a bankruptcy is filed, schedules D, E, and F, list all of the debts owed by the debtor.  Debts to anyone for any reason.  Because the debtor hadn’t received a discharge when this case was filed, those debts should be identical to those on the Chapter 7 petition.  It’s possible the debtor might only have listed debts that would have survived the Chapter 7 – like mortgage debt, certain taxes, student loans, child support, and so forth.

The second, and more troublesome issue, is that for a time there were two bankruptcy estates open.  If that sounds weird and confusing it is.  A bankruptcy estate is the financial world of a debtor – whether an individual, or a business.  Imagine if your beloved grandfather passed away peacefully.  Everything he owned and all of his debts would be involved in his estate.  Now suppose just as everything was to be divided and resolved with his family, you were told that your grandfather had a second estate that prevented this matter from being closed, and that the property couldn’t be divided until this second case was resolved.  Well, other than the pain and sorrow of a death, this is very similar to two bankruptcy cases being open at once.

There are now questions of “bad faith” – whether the Chapter 13 was filed with the intention of paying back creditors, or simply to stall another process.  This would have been much cleaner had the debtor simply wanted until the Chapter 7 was closed to file.  Then a new estate, free from the Chapter 7, would be created and easier to manage.  Unfortunately, that didn’t happen, and the court will have a very messy case to deal with.
I wouldn’t want to be that debtor or their attorney!

The moral of the story:  The bankruptcy process has to be completed – either dismissed without a discharge, or closed after a discharge, in order to be started again. Consecutive bankruptcies may be ok, but two simultaneous bankruptices is not.

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