“Chapter 20” Bankruptcy
What is “Chapter 20” bankruptcy, and how does it related to Chapter 7 and Chapter 13 bankruptcy? In some ways, it is a combination of filing for Chapter 7 bankruptcy and Chapter 13 bankruptcy. However, it is important to recognize that there is no such thing as “Chapter 20” bankruptcy under the U.S. Bankruptcy Code. Rather, it refers to a situation in which a debtor files first for Chapter 7 bankruptcy in order to discharge certain debts and then immediately files for Chapter 13 bankruptcy in order to create a repayment plan for debts that the filer does not want to have discharged (or in some cases cannot be discharged) through Chapter 7 bankruptcy. To put it in more basic terms, Chapter 20 bankruptcy refers to a situation where a debtor files for Chapter 7 bankruptcy then files for Chapter 13 bankruptcy—when “added” together, these create a “Chapter 20” bankruptcy.
There are benefits and limitations to Chapter 20 bankruptcy, and we will discuss some of them with you below.
How Can Chapter 20 Bankruptcy Help You?
Most often, debtors choose Chapter 20 bankruptcy because there are certain unsecured debts they want to get rid of entirely, while there are some secured debts that they want to retain in some capacity. For example, a debtor might want to keep her house that she is currently struggling to make mortgage payments on, but she might want to have the benefits of a liquidation bankruptcy in order to discharge a significant amount of credit card debt. This type of scenario allows us to discuss one of the most common benefits of Chapter 20 bankruptcy. Chapter 20 bankruptcy can allow you to get a fresh start with unsecured debt—getting a discharge of that debt—while still keeping secured debt like your home. In this scenario, the debtor may be able to have the credit card debt discharged through Chapter 7 bankruptcy and then catch up on missed mortgage payments and get back on track with a mortgage.
Another way that Chapter 20 bankruptcy can help a debtor is when the debtor has too much unsecured debt to file for Chapter 13 bankruptcy. The current debt limits on Chapter 13 bankruptcy are $1,184,200 for secured debt and $394,725 for unsecured debt. If you have more debt than this, you cannot file for Chapter 13 bankruptcy. If the debtor wants to file for a reorganization bankruptcy, she will need to choose Chapter 11 bankruptcy. How can Chapter 20 bankruptcy benefit this type of debtor? Imagine a scenario in which a debtor has $400,000 in unsecured debt and a mortgage of $500,000.
The debtor does not want to lose her home, so she does not want to file simply for Chapter 7 bankruptcy to discharge all of her debts. At the same time, she does not want to deal with the high costs associated with Chapter 11 bankruptcy. In this scenario, she may be able to file for Chapter 7 bankruptcy to discharge some or all of her unsecured debt, making her eligible for Chapter 13 bankruptcy. Then, she can file for Chapter 13 bankruptcy to reorganize her secured debts, including her mortgage (and can keep her house as long as she remains up to date on those payments).
Timing Limitations of Chapter 20 Bankruptcy
One of the most obvious limitations to Chapter 20 bankruptcy is the timing limits for bankruptcy discharge. If you receive a Chapter 7 discharge and then file for Chapter 13 bankruptcy, you cannot be eligible for a discharge until at least four years have passed from the date of your Chapter 7 discharge.
There are additional limitations, and you should always work with a Tampa bankruptcy lawyer when filing for consumer bankruptcy.
See Advice from a Tampa Bankruptcy Attorney
Do you have questions about Chapter 20 bankruptcy and how it might be able to help with your debt situation? An experienced Tampa bankruptcy lawyer can speak with you about your case. Contact Samantha L. Dammer today.