What is Chapter 20 bankruptcy?
Chapter 20 bankruptcy is a strategy that combines elements of both Chapter 7 and Chapter 13 bankruptcy plans. The process involves initiating a Chapter 7 bankruptcy first, which helps reduce unsecured debts and overall debt amounts. This, in turn, may bring the debtor within the acceptable range for filing a Chapter 13 bankruptcy.
Understanding Chapter 20 bankruptcy filing
In simpler terms, a Chapter 20 bankruptcy consists of two sequential filings: first, a Chapter 7 bankruptcy for the discharge of debts, and second, a Chapter 13 bankruptcy for specific purposes. Under Chapter 13, the second filing does not aim to discharge debts again, as there’s a four-year restriction for obtaining a second discharge. Instead, it serves other legitimate purposes, such as for property, removing subordinate liens, or fully paying non-dischargeable debts.
One common scenario is when an individual qualifies for essential Chapter 7 bankruptcy but would be required to pay a significant amount of money to a mortgage and unsecured creditors under a Chapter 13 filing. By completing Chapter 7 first, unsecured debts are eliminated, and the payments in the subsequent Chapter 13 filing to remove a second mortgage lien can be substantially reduced.
Another situation arises when the disposable income payments in an original Chapter 13 filing would be distributed among all creditors. In Chapter 20, all Chapter 13 payments in the second bankruptcy can be directed solely to non-dischargeable debts or assets like student loans or recent tax obligations.
For example, for some debtors facing unresolved financial challenges after Chapter 7 or Chapter 13 bankruptcy, the option of Chapter 20—filing a Chapter of bankruptcy filings or 13 immediately after completing a Chapter 7—may offer more relief than pursuing either bankruptcy type alone.
Opting for Chapter 7: Quick Debt Relief
If you want to get rid of debt quickly and avoid a lengthy repayment plan, Chapter 7 is your fastest solution. It’s simpler to qualify for, especially if you’re dealing primarily with unsecured debt like your credit card debt and medical bills. If big loans, like mortgages or car payments, are a minor concern and must meet Chapter 13 criteria, Chapter 7 is your go-to choice.
Choosing Chapter 13: Tackling Secured Loans
If your main worry is loans tied to assets, like cars or homes, Chapter 13 might be your hero. It can help you dodge foreclosure and keep your valuable belongings. With an intelligent payment plan, you could pay off a chunk, or even all, of your secured and unsecured debts. For those situations where Chapter 13 alone can do the trick, especially if Chapter 7 isn’t an option for most people around you, it’s time to embrace Chapter 13.
When Can Chapter 20 Bankruptcy Be Beneficial?
While not widely recognized and seldom talked about, Chapter 20, when handled by experienced legal counsel, can offer the most effective relief within the bounds of state or federal law.
Extra Time
If you require additional time to address overdue mortgage or car loan payments but your overall debt surpasses Chapter 13 limits, filing Chapter 7 first can be beneficial. This initial filing helps reduce overall debt, making you eligible for a discharge under Chapter 13. While a second discharge isn’t possible in Chapter 13, the second bankruptcy filing provides extra time to address mortgage or car loan arrearages and non-dischargeable debts like taxes.
More Funds for Arrearage or Non-Dischargeable Debt:
Filing Chapter 7 before Chapter 13 may lower unsecured tax debt, freeing up more income to tackle arrearages or pay off non-dischargeable debts. This flexibility allows you to shorten your Chapter 13 plan period, address higher arrearage amounts, or pay more significant tax debts through the plan.
Lien Stripping
Some courts permit stripping other unsecured debt and second mortgages in Chapter 13 bankruptcy. However, this varies among courts, so consulting with an attorney or an experienced bankruptcy lawyer is advisable if lien stripping is the goal.
Chapter 20 Bankruptcy Benefits
Filing a Chapter 20, if you qualify, can be a viable solution for consumers grappling with significant tax debt.
Chapter 13 Qualification Assistance
Chapter 20 aids in qualifying a debtor for Chapter 13 by potentially eliminating sufficient unsecured debt to meet Chapter 13 eligibility criteria, significantly if the value of the debt exceeds set limits.
Handling Priority and Secured Debts
Chapter 20 allows for formulating a repayment plan in Chapter 13 to address debts that cannot be eliminated in Chapter 7. This includes catching up on missed mortgage payments or paying off non-dischargeable priority debts like recent tax obligations. Wiping out general unsecured debts through Chapter 7 enables the allocation of disposable income to secured and priority debts in Chapter 13.
Consult with a Bankruptcy Attorney Before Considering Chapter 20
Chapter 20 filings are not explicitly defined by bankruptcy law. They are viewed as a strategic approach to gaining an advantage over debt relief and creditors, a practice not favorably regarded by bankruptcy courts.
Deciding on bankruptcy is challenging. Please reach out if you need clarification on whether bankruptcy is the right path for you or more insights into the distinctions between Chapter 7 and Chapter 13.
It is advisable to exercise caution and seek guidance from qualified local bankruptcy attorneys before opting for a Chapter 20 bankruptcy strategy to eliminate debts.
Babi Legal Group is here for you, always ready to discuss how Chapter 20 might apply to your unique situation. We’ve successfully tackled even the most intricate and enduring tax challenges, providing swift resolutions. Your questions deserve answers – let’s find the right chapter 20 solution for you.
