Most people are familiar with Chapters 7, 11, 12 and 13 of bankruptcy. Chapter 12 is for family farmers. Chapter 11 is often used by large corporations. Chapters 7 and 13 are used for consumers. But what’s a “Chapter 20?” You won’t actually find mention of Chapter 20 anywhere in the bankruptcy code but it’s the commonly used name for a Chapter 13 following a Chapter 7. But why would anyone file two bankruptcies, one right after the other? Here are two examples of how a Chapter 20 might work.
A debtor who qualifies for a Chapter 7 but has significant nondischargeable debt, like taxes, back child support or student loans, could choose to file either a Chapter 7 or 13. If the debtor files just a Chapter 7 he or she will still leave bankruptcy with a lot of debt. If the debtor files just a Chapter 13 some or all of the nondischargeable debt will be paid through the Chapter 13 plan, but some of the dischargeable debt might be also, perhaps reducing how much money goes to the nondischargeable debt. A better approach might be to file the Chapter 7 first so all the debt that can be discharged will be eliminated. After the discharge, file a Chapter 13 to pay only the debt that couldn’t be discharged in the Chapter 7. The Chapter 13 then focuses all the debtor’s resources on paying the debt that needs paid.
Another way Chapter 20 can be used is to file a Chapter 7 to discharge all unsecured debt, followed by a Chapter 13 to strip off a second mortgage or to cram down a motor vehicle or other secured property, neither of which can be done in a Chapter 7. This Chapter 20 then becomes a way to not only discharge all the debt that can be discharged but also to restructure secured debts.
If you think a Chapter 20 might make sense in your situation contact us at Nancy L. Thompson Law Office, P.C..