SO-CALLED "CHAPTER 20" BANKRUPTCY

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There is no such thing as a “Chapter 20 bankruptcy" in Federal law. However, in certain unusual cases, it may be advantageous for some people to file a Chapter 7 bankruptcy, then file a Chapter 13 immediately after the 7 is complete, if that is allowed in the bankruptcy district where they live. (You must meet all of the usual conditions to file a 7 and a 13.) This is informally called a “Chapter 20" by some attorneys and trustees (7 + 13 = 20). Filing a 13 will not lead to a discharge of debts if it is filed less than four years after the 7 (in which debts were discharged) is over, but there could be other reasons to file a followup Chapter 13.

For example, it may be you have very large non-dischargeable debts, such as IRS tax debt or student loans. Filing a 7 first could get rid of a large amount of dischargeable debt, such as credit cards, medical bills, or lawsuits, or wage garnishment due to adverse court judgments against you. Then, with that debt out of the way, you could use the protection of the Chapter 13 to make an affordable payment on your non-dischargeable debts without collectors harassing you.

Others sometimes file a “20" because they need extra time to pay off mortgage arrearages, or because they want to strip off an unsecured second mortgage if their house mortgage is upside down.

There is also the possibility of someone filing a Chapter 13 and receiving a discharge, and then having an unexpected credit crisis (such as huge medical bills from a stroke or accident). In a case like this, you are allowed to file a followup Chapter 7 and receive a discharge if you paid off all creditors 100% in your Chapter 13 (and sometimes, depending on the circumstances, if you paid off at least 70% of all claims, and “the plan was proposed in good faith and was your best effort.") If neither of these was the case with your discharged Chapter 13, no discharge can be allowed for the followup Chapter 7 until at least six years have passed.

Entire article ©2012 The Williams Law Office LLC

Additional Resources

Also see my other Legal Guides: CHAPTER 7 BANKRUPTCY-- A BRIEF OVERVIEW; CHAPTER 13 BANKRUPTCY-- A BRIEF OVERVIEW; CHAPTER 11 BANKRUPTCY-- A BRIEF OVERVIEW; and THREE LESS COMMON TYPES OF BANKRUPTCY: CHAPTER 9, CHAPTER 12, AND CHAPTER 15.

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