An individual that has a bankruptcy case dismissed is significantly implicated in a subsequent case that is filed within a 12-month period of the previous case dismissal other than a refiled chapter 7 bankruptcy after dismissal under 11 U.S.C. § 707(b).
This often arises within a chapter 13 bankruptcy case where a client failed to make plan payments or file necessary documents with the Court that are necessary in a bankruptcy case. Upon the filing of the second case, the Debtor will need to file a motion to extend the automatic stay – an automatic injunction that halts actions by creditors, with certain exceptions, to collect debts from a debtor who has declared bankruptcy – and have that motion heard within thirty days of the second case being filed pursuant to 11 U.S.C. § 362(c)(3)(A) or the Debtor will not have the benefit of the automatic stay.
Demonstrating Good Faith
The second case is presumed to be filed in bad faith under 11 U.S.C. § 362(c)(3)(C) if the Debtor fails to make plan payments, file necessary documents or if there has not been a substantial change in circumstances (amongst other things) that can be rebutted by clear and convincing evidence. Therefore, the Debtor in this situation will need to demonstrate his good faith in filing the bankruptcy and demonstrate that there has been a substantial change in circumstances in his financial situation at the time the current bankruptcy was filed from the time the previous bankruptcy was filed.
What qualifies as a substantial change in circumstances?
A substantial change in circumstances can be a decrease in a priority income tax liability, a decreased car payment, a change in personal affairs causing financial stress, etc. However, it’s important that you be able to demonstrate to the Court that things are different in your life at the time of the second bankruptcy filing. Essentially, the Debtor needs to be able to explain to the Court why this bankruptcy case is not going to end in the same result as the previous bankruptcy case based on specifically identifiable factors.
Relevant factors relating to the circumstances
As to good faith, the Third Circuit Court of Appeals (the federal appeals circuit for New Jersey) evaluated good faith in this context in the case titled In re Lilley, 91 F.3d 491 (3d. Cir. 1996). The Third Circuit found “that the good faith of Chapter 13 filings must be assessed on a case-by-case basis in light of the totality of the circumstances.
Factors relevant to the totality of the circumstances inquiry may include, among others, the following:
- “the nature of the debt;
- the timing of the petition;
- how the debt arose;
- the debtor’s motive in filing the petition;
- how the debtor’s actions affected creditors;
- the debtor’s treatment of creditors both before and after the petition was filed; and
- whether the debtor has been forthcoming with the bankruptcy court and the creditors."
As you can see, it’s far from a simple procedure to reinstate the automatic stay in a second individual bankruptcy case within a 12-month period from when a previous individual bankruptcy case has been dismissed.
If you find yourself in this situation, it’s important to contact an experienced bankruptcy practitioner to guide you through the process.