Chapter 20 Bankruptcy

“Chapter 20” bankruptcy does not exist in the bankruptcy code. Instead, this term refers to someone filing for Chapter 7 bankruptcy before filing for Chapter 13 bankruptcy (7+13=20). Chapter 20 bankruptcies were once a very common tactic, although they are not very common today. Still, Chapter 20 may offer benefits in some situations.

With a Chapter 20, you can discharge your unsecured debts through Chapter 7 then file for a Chapter 13 bankruptcy to catch up on important secured debts like a mortgage or finish paying off nondischargeable debts.

Advantages of a Chapter 20 Bankruptcy

Unlike a Chapter 7, Chapter 13 bankruptcy requires that your unsecured debt not exceed $360,475, and your secured debt does not exceed $1,081,400. If your debts currently exceed these limits, you cannot file Chapter 13, but you may be able to significantly reduce or eliminate your debts through a Chapter 7 first before filing for Chapter 13.

A Chapter 20 allow helps you to focus on secured and priority debts because Chapter 13 requires proposing a 3 to 5-year repayment plan to pay back all or some of your debts. A Chapter 13 can help you catch up on mortgage payments and pay off priority debts that cannot be discharged through Chapter 7, such as recent tax bills.

A Chapter 13 typically requires paying back some of your unsecured debts like credit card debt through your repayment plan. By discharging these debts through a Chapter 7 bankruptcy first, your Chapter 13 repayment plan will focus on just the nondischargeable priority debts and secured debts you want.

Chapter 20 Bankruptcy Has Downsides

There are serious drawbacks to a Chapter 20, however, which means it should only be used in specific situations.

A serious consequence of Chapter 20 is you will not receive a discharge through Chapter 13 because you have already filed for Chapter 7 and received a bankruptcy discharge. The only way to get a discharge in Chapter 13 is if your case is filed at least 4 years after your Chapter 7 filing date.

Lien stripping may not be possible through Chapter 20, either. If the balance of your first mortgage exceeds your home’s value, it makes your second mortgage fully unsecured. It may be possible to get rid of the second mortgage through lien stripping in a Chapter 13, but this is not an option with a Chapter 7.

In most cases, bankruptcy courts argue that you must be eligible for Chapter 13 discharge to strip a second mortgage from your home, so a Chapter 20 will remove the ability to lien strip.

Finally, keep in mind that a bankruptcy trustee may object to your Chapter 13 bankruptcy filing if he or she considers it a bad faith filing and abuse of the system. This may be the case if you are filing Chapter 20 to avoid paying back unsecured debts. If you get a bad faith objection, you must show you had a valid reason for choosing a Chapter 20 rather than avoiding paying back some of your unsecured debts by filing for Chapter 13 only.

Contact a Las Vegas Chapter 20 Bankruptcy Lawyer

A Chapter 20 bankruptcy is very complex and there are many pitfalls to understand. While you are within your rights to file Chapter 7 then Chapter 13 without legal representation, a Chapter 20 bankruptcy attorney in Las Vegas can help you determine whether it is in your best interest and how to proceed. Contact the bankruptcy lawyers at Vegas BK for a free consultation with a bankruptcy lawyer who can help you explore your options.