As a general rule you shouldn't rewrite everything from scratch. This does not mean that you shouldn't, on occasion, rewrite some parts of your system. Rewrites are expensive. On the other hand some code you think is bad really is bad, and it will be a net win to rewrite it.

To make a call like this, you really do need a pretty good understanding of your codebase, your business, your testing exposure, the capabilities of your team, and probably some other stuff as well. In reality, your understanding is never going to be as good as you really need it. This doesn't mean you should never rewrite any portion of your codebase, it just means that you really need to reduce the scope a lot to reduce the risk to a manageable amount.