Representation Is Everything: A Blog About Bankruptcy Law

When individuals file for bankruptcy, they typically use Chapter 7 or Chapter 13 laws in order to do it. However, some people end up using Chapter 20 instead. Here is what you need to know about this unique form of bankruptcy.

What's Chapter 20?

You may find yourself in a situation where your financial debt cannot be resolved with Chapter 7 or 13 bankruptcy by themselves. Chapter 20 is when you essentially file for Chapter 13 and immediately use Chapter 7 rules to clear out your financial debts. It allows all of the unsecured debts to be completely discharged with Chapter 7 laws, such as credit card debts, but still allows a home or auto loan to be restructured under Chapter 13.

Why Is Chapter 20 Not Used More Often?

While on paper Chapter 20 may sound like the perfect option, know that more often than not it is rejected by the courts. This is why there is typically a waiting period for how long you must wait before you can file for bankruptcy again. It is a tricky legal process where a second bankruptcy needs to be filed before the first bankruptcy is completed, which is why it is best to work with a lawyer that can get this done within the rules of the law.

Are There Advantages of Using Chapter 20?

If someone files for Chapter 13 within the waiting period after filing with Chapter 7 bankruptcy, the person would be unable to benefit from using the debt discharge with Chapter 13, but can see many of the benefits. For example, Chapter 7 can be used to completely wipe out many of the unsecured debts, which will get you under the debt limit needed to file using Chapter 13. It allows the person using bankruptcy to avoid using Chapter 11, which is a more complex form of bankruptcy.

Why Should Someone Avoid Chapter 20?

If you are wondering why Chapter 20 seems too good to be true, it helps to be aware of the drawbacks. Know that Chapter 20 is going to nullify any of the debt discharged with Chapter 13, and you will be barred for any lean stripping benefits provided by Chapter 13. It is also possible that your discharge will be rejected because the court believes you are using Chapter 20 in bad faith, leading to having to appeal the decision and come up with a good legal reason for why you are using Chapter 20. 

If you are considering filing for bankruptcy, talk to a bankruptcy attorney to decide the best option for you.