There is no actual “Chapter 20” bankruptcy under the law. However, when Chapter 7 or Chapter 13 bankruptcy is not enough to deal with your debts, you may be able to file both at the same time. The process is known colloquially as Chapter 20 bankruptcy, as it combines the two forms of bankruptcy into one process.
What is Chapter 20 Bankruptcy?
Chapter 20 bankruptcy is an informal term used to describe a specific type of bankruptcy petition. A petitioner will file for Chapter 7 bankruptcy first and then immediately file a Chapter 13 bankruptcy afterward. Chapter 7 bankruptcies are good at handling unsecured debt, while Chapter 13 bankruptcies do better with secured debt such as a mortgage or a car loan. But there is no Chapter 20 bankruptcy under the bankruptcy code.
The “Chapter 20” process leverages the advantages of each type of bankruptcy while mitigating the disadvantages. In a Chapter 7 bankruptcy, you discharge unsecured debts such as credit card debt or personal loans. But Chapter 7 does not allow you to cure mortgage arrears, pay non-dischargeable debts, or strip second mortgages. You can do all of those in Chapter 13.
Chapter 13 bankruptcy allows you to manage mortgage payments and car loans or strip a second mortgage that has gone completely underwater. Under Chapter 13, your debts are consolidated into a lump sum payment and managed by the bankruptcy trustee. You continue to make payments on your mortgage or car loan while also making payments on your unsecured debts.
When Should I Consider a Chapter 20 Bankruptcy?
There are three situations in which filing a Chapter 20 bankruptcy might be useful. However, sometimes bankruptcy trustees block the process, and you should be aware that not all debtors will be able to qualify.
- Debt limits – Chapter 7 bankruptcy requires that you make under a certain amount of money to qualify. Chapter 13 caps the amount of debt you owe. If you owe too much to file under Chapter 13, you can use Chapter 7 to discharge your debts. That would get you under the debt limit for Chapter 13. There are, however, time limits when using this process.
- You need more income to pay an arrearage – Chapter 7 will free up your finances to make payments on your mortgage or your car. As a result, this could help you cure a higher arrearage amount, pay tax debts, or reduce the length of your Chapter 13 repayment schedule.
- You want to strip a lien – In this context, a lien refers to a second or third mortgage on your home. Chapter 13 can help you strip a lien from your home. Sometimes, you can use Chapter 20 to remove an unsecured lien. Chapter 7 bankruptcy does not allow you to do this.
Talk to an Indiana Bankruptcy Attorney Today
Chris Arrington represents the interests of those who are so far in debt that they cannot pay their way out. Call our office today to schedule an appointment, and we can begin discussing your best plan immediately.