While many are familiar with the terms 'chapter 7' and 'chapter 13' in regards to bankruptcy, most have probably never heard of a chapter 20 bankruptcy filing. The following is a brief description of some of the primary differences, advantages, and drawbacks of a chapter 20 bankruptcy filing.
How Is It Different?
A chapter 20 filing essentially allows the debtor to first file for chapter 7 bankruptcy, and later complete a chapter 13 filing. In reality, the phrase 'chapter 20' is simply an informal amalgamation of chapter 7 and chapter 13, and doesn't actually exist in the bankruptcy code. Nonetheless, it is a form of bankruptcy that many elect to pursue every year.
By first filing for chapter 7 bankruptcy, you might ultimately be able to qualify for a subsequent chapter 13 filing as a result of having your debts discharged. One of the requirements for chapter 13 bankruptcy is that the individual's secured and unsecured debts not exceed a certain amount. However, as the majority of your debts are discharged in a chapter 7 filing, you may then qualify for a chapter 13 filing.
Although you won't receive another discharge under a chapter 13 filing, you will be able to take advantage of your repayment options for secured debts under a chapter 13 filing. So, if you have a significant amount of unsecured debt but you still want to make good on assets like your home or automobile, a chapter 20 filing might be just what you need.
Many also opt for a chapter 20 filing for the 'lien stripping' benefits it can provide. Lien stripping most often refers to the second or third mortgages that people have on their homes. Generally, these additional mortgages are not backed by equity in your home and, as such, qualify as unsecured debts, which are discharged under a chapter 13 filing.
There are a few disadvantages to going the chapter 20 route. The biggest hurdle in chapter 20 filings is when creditors object on the basis of bad faith. What this equates to is creditors asserting that your only objective in completing back-to-back bankruptcy filings is to avoid having to pay them back. The courts might see this as an abuse of the system and reject your request for subsequent filings. A bankruptcy attorney will be able to counsel you regarding the most appropriate course of action in bankruptcy proceedings.
In the end, it is important that you consult a qualified attorney at places like Bauer & French Attorneys at Law to help you through the bankruptcy process. A chapter 20 filing can be extremely beneficial, but if the courts reject your request for a subsequent chapter 13 filing, than you are stuck with the terms of a chapter 7 filing, which might not have been the best solution to your debt problems in the first place. In examining your debt levels and which class of debt they fall under, a bankruptcy lawyer will be able to advise you on the most beneficial filing for your particular situation.