Chapter 20 – Bankruptcy – What you should know

by Dorothy Bunce

Most people have heard about bankruptcy and know that Chapter 7 is the regular bankruptcy, Chapter 13 is the payment plan, and Chapter 11 is a reorganization for businesses or wealthier individuals. Less well-known is Chapter 9, a reorganization of debts of a municipality or city, and Chapter 12, a reorganization program for families, farmers and fishermen.

Strangely, nowhere in the bankruptcy law is there anything actually called a Chapter 20. But don’t conclude that a Chapter 20 is a sham or is something that doesn’t exist. Chapter 20 is a real thing, but it is bankruptcy lawyer jargon meaning a Chapter 7 Bankruptcy followed by a Chapter 13 bankruptcy, or vice versa– a Chapter 13, followed by a Chapter 7. Because 7 + 13 = 20, bankruptcy lawyers refer to these two cases, one followed by the other, as Chapter 20.

As an attorney who has practiced Bankruptcy law in Nevada since 1979, I can tell you that interest in using Chapter 20 to help people has become more and more important for people with legal complications beyond just debts. It is a common misconception that bankruptcy can only help someone once in a great while or only helps poor people. It is true that the bankruptcy laws can be used to eliminate debts only once every eight years; however, if the intention is to accomplish something other than eliminate debts, then using bankruptcy to manage financial problems can offer an infinite variety of benefits.

One important benefit of filing bankruptcy is that it provides a powerful and instant protection from all creditors, even the IRS. Bankruptcy stops creditors from taking any steps to force the collection of debts. Forced collection can include wage garnishment, attaching a bank account, foreclosure, repossession, placing liens against real estate or other property.

Although most debts can be eliminated by filing a Chapter 7 bankruptcy, some debts won’t go away through bankruptcy. Examples include certain tax debts, student loans, alimony and child- support, as well as debts related to restitution for crimes. Other debts that can be eliminated in a Chapter 7 bankruptcy, could result in the loss of property unless they are paid. For example, if someone doesn’t pay a mortgage, the creditor can foreclose. If someone doesn’t pay their vehicle loan, the creditor can repossess.

Foreclosure or repossession can take place immediately after a bankruptcy is completed or if the creditor obtains special permission from the bankruptcy court. Someone who wants to pay debts financing the purchase of property in order to keep the property must act quickly if they are behind on their payments or file a Chapter 13 to get up to 5 years to catch up on these payments.

Only in a Chapter 13 can an individual get the following benefits 1. Take up to 5 years to catch up on past due mortgage payments at 0% interest. 2.. Remove a lien from a second mortgage or equity loan through lienstripping, on the condition that the balance on the 1st mortgage is more than the value of the property. 4. Pay IRS debts at 0% interest and without additional penalties. 5. Re-write the rate of interest on car loans, student loans and many other debts down to current market rate. 6. Extend the amount of time to repay debt that someone either wants to (because the debt is tied to the financing or property) or has to pay (because the debt isn’t eligible to be eliminated in bankruptcy). 7. Allow the protection of bankruptcy from creditor collection action while keeping the right to “back out” of the bankruptcy if circumstances change.

The more I consider how Chapter 20 can to help people, the more ways I see that Chapter 20 can solve complicated financial problems. Of course, there are drawbacks to filing Chapter 13. The Chapter 13 program is neither cheap nor easy, and participating in it can be very stressful. But the benefits to filing Chapter 13 can result in substantial savings on mortgage debt, interest, penalties, or the legal hassles associated with collection of debts that can’t be eliminated in Chapter 7.

Chapter 20 can combine the best of both Chapter 7 and Chapter 13. It be a godsend to many who are struggling with their debts. An everyday example of someone who might benefit from Chapter 20 is a person whose wages are being garnished for a credit card debt and needs bankruptcy protection of the law right away. But if there is a financial complication, such as an impending large expense, for example, a necessary surgery, instead of using up the right to eliminate debts immediately, filing Chapter 13, then Chapter 7, could solve the problem. If necessary, this person can even return to bankruptcy court to file another Chapter 13 to resolve any remaining issues that exist.

My only question is – would this be called a Chapter 33?

2 Responses to "Chapter 20 – Bankruptcy – What you should know"

  1. HF1   July 29, 2014 at 11:29 am

    Does not both a Chap 13 and Chap 7 filing itself constitute an automatic stay of creditors?

  2. Judith Kelly   June 18, 2014 at 10:36 am

    Do you need to file an autoatic stay with a chap 20?

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