Could Chapter 20 Bankruptcy Help You?

Here’s a riddle: Can you file a type of bankruptcy that’s not actually written in the bankruptcy code or the bankruptcy laws? The answer is yes, you can: Chapter 20 bankruptcy.

It’s no coincidence that Chapter 7 plus Chapter 13 happens to equal 20; that’s because Chapter 20 is a combination of both forms of bankruptcy that isn’t actually written into bankruptcy laws.

Why Chapter 20?

Your initial question may be, why would anybody want to do both types of bankruptcies? Isn’t one enough? Well, the reason is because both Chapter 7 and 13 do different things and by filing for both, you get the advantages of both.

How Does Chapter 20 Bankruptcy Work?

Initially, a debtor files for Chapter 7 bankruptcy to wipe out debts, without any payments. That is the main incentive of Chapter 7, and for most people, Chapter 7 bankruptcy would be all that they need.

But there is one thing that Chapter 7 doesn’t do: It doesn’t specifically allow you to catch up with payments owed to secured creditors, such as mortgage companies or car loan companies. Unless you work something out with the lenders, when your Chapter 7 case is over, you will be back in default, foreclosure, or repossession.

This is where Chapter 13 comes in. Chapter 13 does allow you to catch up with payments on secured property. This Is a huge benefit of filing for Chiropter 13. So long as you can both pay your regular, ongoing payments, and also catch up the amount you are behind through the Chapter 13 plan, by the time you are done with the plan, you will be current on your mortgage or car loan.

So, the strategy is that once you’re done with your Chapter 7, you then file the Chapter 13, to get current on those mortgage or car payments.

Other Benefits of Chapter 20

Additionally, sometimes you may be able to lessen the amount that you owe on your car, or your home, if your car or home is “upside-down” (has negative equity). This often depends on where you file your case, and the rules are different for cars and houses, but if it is possible in your situation, this is another reason why you may want to do a Chapter 13 after your Chapter 7.

Because you have already discharged mostly all of your debts in the prior Chapter 7 case, your payments in your Chapter 13 may be manageable—more manageable than they would have been had you only filed a Chapter 13.  This could make it easier for you to qualify for a Chapter 13 bankruptcy.

Qualifying for Both

One potential problem to doing a Chapter 20, is that you have to be able to qualify for both the Chapter 7 and the Chapter 13—that is, you have to pass the means test required in Chapter 7, but you also have to make enough money to qualify for a Chapter 13 payment plan.

Figure out a bankruptcy strategy that works for you. Contact the Boca Raton bankruptcy attorneys at the Law Offices of Stephen Orchard at 561-455-7961 today for help.

Resource:

scholarlycommons.law.emory.edu/ebdj/vol32/iss2/8/