What is a “Chapter 20” Bankruptcy?

There are occasionally times when individuals have financial problems that cannot be entirely solved by filing a Chapter 7 or Chapter 13 bankruptcy.  In these unique situations, it may be best to file a Chapter 7 bankruptcy and then immediately file a Chapter 13 bankruptcy, informally known as a “Chapter 20.”

Why would you do this?  Sometimes debtors have an excessive debt load that precludes them from filing a Chapter 13 case, but at the same time they are delinquent on a house or car loan.  In Chapter 7 cases, the creditors do not have to allow you to “catch up” on these arrearages.  They can simply file for relief and then proceed with the steps to take back possession of their property (through foreclosure, repossession, etc.).  In a Chapter 13 bankruptcy you are allowed to cure these arrearages and protect your property.

In this situation, debtors could file for Chapter 7 bankruptcy and reduce their overall debt load once they receive a discharge.  Then, hopefully, they would qualify for Chapter 13 and would be allowed to propose a plan to cure their arrearages and pay these items back over a period of 3 to 5 years.  Debtors would not, however, be eligible for a discharge in this Chapter 13 having just received a discharge in the Chapter 7.  The second filing would allow the debtors to cure arrearages on a house or car loan or allow them to pay down on debts that were not eligible for discharge under the Chapter 7, such as student loans and/or tax debt.