When to File Bankruptcy: 6 Timing Rules That Decide Whether You Still Can

Whether you can file a business bankruptcy now is a timing question. Time since the last discharge or dismissal, time since last credit counseling, time payments have been made, time since taxes were due, and more. There are a variety of timing rules that can limit bankruptcy options. And even if you can file, there may be a good reason to wait or go ahead now. Before you file a business bankruptcy, check these six timing rules. Like the bankruptcy process itself, some of them go back in time.

One Bankruptcy Case After Another

You can’t get a discharge in one bankruptcy case after another. The time to wait depends on what kind of prior discharge you got and what kind of discharge you want now. Generally, if you get a discharge of debt in Chapter 7 or Chapter 11 bankruptcy, you can’t get another Chapter 7 discharge for eight years. And if you want to get a Chapter 7 discharge after receiving a Chapter 13 discharge, you have to wait six years. If your Chapter 13 Plan paid 100% of unsecured debt or if you paid at least 70% of your unsecured creditors and the Chapter 13 Plan was proposed in good faith and was your best effort, there’s no wait at all. If you want another Chapter 13 bankruptcy discharge, you can’t get one if you had a Chapter 7 or 11 discharge in the last four years. These 8, 6 and 4 year rules are measured from the date you filed your last case, not the date it discharged. Chapter 7 of the bankruptcy code allows only individuals to get a discharge. Since no Chapter 7 discharges corporate debts, six- and eight-year wait periods do not apply. The time you have to wait applies most often when you, as the business owner, file a personal Chapter 7.

If your prior case was dismissed for willfully failing to appear in court or comply with court orders, you might have to wait to try again. The law says you may have to wait 180 days before you can file another bankruptcy case. In either a Chapter 7 or Chapter 13 case, you have to wait at least 180 days if you voluntarily asked to have the case dismissed after a creditor sought stay relief.

If your bankruptcy case was dismissed within the past year, another timing rule could shorten the protection a second filing offers. In any bankruptcy, the automatic stay takes effect as soon as the bankruptcy petition is filed. The stay prevents creditors from proceeding with many collection activities, including the commencement or continuation of lawsuits against the debtor. An automatic stay expires in 30 days if you had one dismissed within the past year. For the stay to continue longer, you have to ask the court to extend it.

Credit counseling has its own clock. Under 11 U.S.C. Section 109(h), individuals seeking bankruptcy protection must get credit counseling from an approved nonprofit agency within 180 days of filing, with limited exceptions. The certificate of completion expires after 180 days. If you don’t file within that time, you’ll have to take another course. Credit counseling applies to individuals, not business entities. Any debt management plan developed in the process must be filed with the court if you later decide to file for bankruptcy.

Favoring Certain Creditors

You cannot prefer one unsecured creditor over another within 90 days of filing Chapter 7, or one year in the case of “insiders.” The trustee can make the creditor give back what you paid. If you transfer money, property or assets with the intent to keep it away from creditors before you file, the bankruptcy trustee may be able to cancel or undo the transfers. If the transfer was made less than two years before you filed your bankruptcy, a trustee can undo fraudulent conveyances under various state and federal laws.

When money is tight, there’s a natural temptation to pay family, friends, key officers or the suppliers you most rely on. You might think you’re helping the business by paying an insider. But if that’s within 12 months of the bankruptcy filing, the bankruptcy trustee can force the insider to give back what you paid.

Because of Your Income or the Size of Your Debt

You are not necessarily ruled out of Chapter 7 because of your income or the size of your debt. The so-called means test only matters if you are an individual whose debt is mostly consumer, not business. You also need to be above the median income level in the state in which you are filing. This means testing looks backward. It averages your income over the six calendar months before the month you file. If it looks like the test presumes abuse, the court may dismiss your Chapter 7 case. If your income has spiked recently, it may be months before you’re “allowed” to file Chapter 7.

Time limits and required tax filings also govern which taxes you can eliminate through a bankruptcy. It depends on several timing factors: when the return is filed, when it’s due, and when you file bankruptcy. Filing a tax return late, within 2 years of bankruptcy, means you cannot eliminate that tax obligation. Timing matters for other debts too: consumer debts like cash advances over $1,250 taken within 70 days of filing are presumed to be non-dischargeable. Don’t try to use your credit cards as a bank.

If your small business wants to reorganize, look at Chapter 11, not Chapter 7. Chapter 7 is for closing a business or liquidating. To use Subchapter V, noncontingent, liquidated debts have to be below $3,424,000 under the 2025 limit and a plan must be filed within 90 days.

Consulting with a bankruptcy attorney before you decide whether and when to file is crucial. And even when you can file, it doesn’t mean that you should. Bankruptcy is not your only option. In addition to bankruptcy, look at settling with your creditors. If you do file, timing can make the difference between bankruptcy success and failure. Be prepared and make sure all the timing rules are carefully considered.