Bankruptcy

Isn’t It True That a Business Can File for Chapter 7 Bankruptcy Only Once Every Seven Years?

By Cara O'Neill, Attorney
Find out how often a sole proprietor can wipe out business debt in a Chapter 7 bankruptcy.

No. The rule is as follows: An individual or a sole proprietor filing a business (or non-consumer) bankruptcy can get qualifying debts wiped out (discharged) in a Chapter 7 bankruptcy once every eight years. (Find out whether you qualify to file a business bankruptcy by reading Should I File a Business Bankruptcy or a Personal Bankruptcy?)

If the individual or sole proprietor wants to file a Chapter 7 bankruptcy more than once within the eight-year period, it can do so. It’s the discharge that’s limited—the ability to get debts wiped out—not the filing itself.

Here’s how it works.

If a second Chapter 7 bankruptcy gets filed before eight years elapses, the bankruptcy trustee—the individual tasked with administering the case—will sell any nonexempt property (property that the filer isn’t entitled to keep) and distribute the funds to creditors. The filer won’t receive another discharge, however. Because the desire to obtain a discharge prompts most Chapter 7 filings, filing more than once within an eight-year period is rare, although it can happen. (If you need debts wiped out sooner, learn how a Chapter 11, 12, or 13 might help by reading How Often Can a Business Get Its Debts Wiped out in Bankruptcy?)

It’s important to understand that partnerships, limited liability companies, and corporations aren’t entitled to receive a discharge under Chapter 7 bankruptcy. These entity types use this chapter to liquidate (sell) and disperse assets to creditors in a transparent manner. Successive Chapter 7 filings aren’t usually an issue for these entities because the initial Chapter 7 bankruptcy filing effectively dismantles the business. A defunct company has no need for additional bankruptcy relief.

(Find out more about the relief available to other business types by reading What Kind of Bankruptcy Can a Business File?)

Go to the main business bankruptcy FAQ page.

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