After filing bankruptcy, what can be done about a sudden new debt?

For most people, filing bankruptcy starts the journey of moving beyond problem debts. However in rare cases, an unexpected debt suddenly arises in the weeks or months after filing bankruptcy. Common examples might be an unanticipated medical expense or liability from an accident.

What age of debt does a bankruptcy discharge?

The general rule is that for debts dischargeable in bankruptcy, they are discharged if they existed as of the date that the bankruptcy case was filed. The filing or petition date breaks the universe of debts into pre-bankruptcy debts and post-bankruptcy debts. So, if a person became liable on a debt the date after filing bankruptcy, that debt is not generally discharged and would survive after the bankruptcy case is complete.

Chapter 13 and Post-Filing Debts

I consider there to be two main strategies exist for dealing with post-filing debts in chapter 13 bankruptcy:

1. Convert to chapter 7. Under a special provision in 11 U.S.C. § 348(d), many debts that arose between the date of filing a chapter 13 and converting to chapter 7 can be discharged in the chapter 7 bankruptcy. However, conversion can have some significant downsides, depending on what exactly the chapter 13 bankruptcy was intended to accomplish.
2. Dismiss the chapter 13 and re-file. Generally, a debtor can voluntarily dismiss a chapter 13 bankruptcy. Such dismissal then opens the door to filing a new bankruptcy that includes the recent debt. This also can have some significant drawbacks, depending on how old the first bankruptcy case is and the status of the chapter 13 plan.

Chapter 7 and Post-Filing Debts

One's options are more constrained in chapter 7 bankruptcy for dealing with unexpected post-filing debts. At the most basic level, the typical 3-4 month duration of a no-asset chapter 7 bankruptcy does not provide as much time to react as a 3-5 year chapter 13 bankruptcy. More a problem is that, unlike chapter 13 bankruptcy, there is no special rule that makes conversion to another chapter attractive, and most often chapter 7 bankruptcies cannot be voluntarily dismissed by the debtor who filed the case.

Instead, one looks to strategies to enable a second chapter 7 to follow onto the first case. The normal limitation is that chapter 7 cases must be filed 8 years apart for successive chapter 7 discharges. However, if no discharge is entered in the first chapter 7 bankruptcy, there's no roadblock to obtaining a discharge in a second chapter 7 bankruptcy. One way to prevent a discharge from being entered in a chapter 7 case is to not file the second counseling certificate evidencing completion of the financial management course.

Drastic Solutions for Big Problems

As the tenor of this post would suggest, the solutions to discharging post-petition debts are drastic steps that carry with them significant drawbacks in many situations. However, some sudden debts that pop up after filing bankruptcy can themselves be financially devastating and call for tough choices. The key is to get prompt advice as soon as the new obligation becomes apparent.