Chapter 20 Bankruptcy

by Johnny Tisdale on February 11, 2013


What is a Chapter 20 bankruptcy?

You probably know that Chapter 7 and Chapter 13 are the two types of bankruptcy most commonly filed by consumers. But have you ever heard of the mythical Chapter 20 bankruptcy? It’s understandable if you doubted its existence, since there are only 15 chapters in the Bankruptcy Code. Believe it or not, “Chapter 20” actually exists, although that name is not official. This special type of bankruptcy occurs when a debtor files under Chapter 13 immediately after receiving a Chapter 7 discharge. Its nickname comes from the fact that 7+13=20.

How can I file again immediately after receiving a discharge?

The Bankruptcy Code establishes time limits on subsequent bankruptcies. For example, after receiving a Chapter 7 discharge, you cannot receive another Chapter 7 discharge unless your second case is filed at least eight years after the filing of the first case. Notice that the limit is on the discharge, not the filing. Theoretically, you can file as many Chapter 7 cases as you like during those eight years. You just won’t receive a discharge, so the time and cost of filing will probably outweigh any benefits.

What are the benefits of Chapter 20 bankruptcy?

The time limit for receiving a Chapter 13 discharge after receiving a Chapter 7 discharge is four years. So how does one benefit from filing under Chapter 13 immediately after receiving a Chapter 7 discharge? Won’t the cost of filing negate any benefits if I won’t receive a second discharge?

The most essential benefit of Chapter 20 is that it buys you time. First, you use Chapter 7 to eliminate as much of your debt as possible. You will still be left with nonexempt debts such as back taxes and student loan payments. Now you use the court-approved repayment plan of Chapter 13 to make it much more manageable to repay your remaining debts. You’ll have to pay these debts in full, which wouldn’t be the case if you waited four years before filing. But now you have three to five years to make these payments. During this time, the collection agencies will be kept at bay.

What are some common Chapter 20 scenarios?

You want to keep your home or car. If a secured creditor refused to reaffirm the debt in your Chapter 7 case, filing a subsequent Chapter 13 case can prevent them from repossessing the property.

Your student loan payment is too high. During the course of your Chapter 13 repayment plan, the lender will have to accept payments that you can actually afford to make. The lender will also have to stop garnishing your wages.

You incur a new debt after your Chapter 7 discharge. You won’t receive a discharge from your new Chapter 13 case, but it will buy you time to repay the debt. If you still owe a significant amount after completing the repayment plan, you can now file another Chapter 13. Assuming that it’s been at least four years since you filed under Chapter 7, you’ll get a Chapter 13 discharge this time.

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Johnny Tisdale

Paralegal at Dowe Law Firm
Johnny Tisdale is a paralegal, web designer, and writer at the Dowe Law Firm. He earned his BS in psychology and ABA-approved paralegal certificate from Auburn University Montgomery in 2011.

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