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What is Chapter 20 Bankruptcy and How Does It Work

  • Updated: July 24, 2024
  • Overwhelming debt can leave you feeling trapped and uncertain about your financial future.
  • Chapter 20 bankruptcy allows you to combine Chapter 7 and Chapter 13 for debt discharge and manageable repayment.
  • To improve your credit and navigate your options effectively, contact The Credit Pros for tailored guidance and support.

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Related content: How Do I File Chapter 7 Bankruptcy (By Myself or With a Lawyer)

Chapter 20 bankruptcy combines Chapter 7 and Chapter 13 filings to manage overwhelming debt. First, you use Chapter 7 to discharge unsecured debt. Then, you follow up with Chapter 13 to reorganize the remaining debts under a manageable repayment plan. This strategy aims to eliminate debt and create a sustainable financial path.

Navigating Chapter 20 requires careful planning and precise execution. You must complete a Chapter 7 bankruptcy and receive a discharge before filing for Chapter 13. This approach is beneficial if your financial situation has tightened, but it’s crucial to understand the eligibility criteria and potential complications. Careful planning is essential to leverage this dual bankruptcy strategy effectively.

For tailored advice, reach out to The Credit Pros. We offer a straightforward, no-pressure conversation to review your entire 3-bureau credit report. Our experts will evaluate your unique situation and guide you through the best course of action to improve your credit and financial health. Give us a call today, and let’s get started on securing your financial future.

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    What Is Chapter 20 Bankruptcy And How Does It Work

    Chapter 20 bankruptcy isn't an official part of the bankruptcy code. It's an informal term for when you file for Chapter 7 bankruptcy followed by Chapter 13 bankruptcy.

    **Chapter 7 Bankruptcy**:
    - Discharges unsecured debts like credit cards.
    - Liquidates non-exempt assets to satisfy these debts.
    - Offers quick relief from overwhelming debt but won't address all obligations.

    **Chapter 13 Bankruptcy**:
    - Filed after completing Chapter 7.
    - Lets you repay remaining debts, like a mortgage or car loan, over time.
    - Helps you regain financial stability by restructuring these debts.

    The combined approach (7+13=20) uses benefits from both chapters:
    - Quickly discharges unsecured debts under Chapter 7.
    - Manages secured or non-dischargeable debts through a structured Chapter 13 plan.

    Courts and trustees might object to this strategy, and not all jurisdictions allow it.

    Bottom line: Consult a knowledgeable bankruptcy attorney to see if Chapter 20 is right for you. They can guide you through this complex process and help you make the best financial decision.

    How Does Chapter 20 Combine Chapter 7 And Chapter 13 Bankruptcies

    Chapter 20 bankruptcy isn't an official type, but a strategy combining Chapter 7 and Chapter 13 filings. You first file Chapter 7 to discharge unsecured debts like credit cards and medical bills. This reduces your overall debt load. Then, you immediately file Chapter 13 to create a repayment plan for remaining non-dischargeable debts like mortgages or car loans.

    This approach allows you to potentially eliminate more debt than using just one chapter. It helps if you have high unsecured debt exceeding Chapter 13 limits or need extra time to repay non-dischargeable debts. However, there are limitations:

    • You must qualify for both Chapter 7 and 13 separately.
    • No additional debt discharge in Chapter 13 if filed within 4 years of Chapter 7.
    • Courts may scrutinize or disallow such filings.
    • The process takes significant time and requires extensive legal expertise.

    If you're considering this strategy, consult an experienced bankruptcy attorney. They can assess if it suits your specific financial situation and goals for debt relief and asset protection. In a nutshell, an attorney's guidance is crucial because every case is unique, and professional advice ensures the best outcome for your financial health.

    What Are The Main Benefits Of Filing Chapter 20 Bankruptcy

    Chapter 20 bankruptcy combines the benefits of Chapter 7 and Chapter 13, offering you a unique strategy to manage your debts.

    • Discharge your unsecured debts first in Chapter 7, such as credit card bills and personal loans.
    • Use Chapter 13 to create a repayment plan for secured debts like mortgages and car loans.
    • Enjoy immediate relief from creditor harassment, collection calls, and wage garnishments due to the automatic stay.
    • Potentially strip unsecured second or third mortgages through Chapter 13.
    • Avoid foreclosure or repossession of your assets.
    • Apply more income towards non-dischargeable debts after reducing your unsecured debts.
    • Improve your credit score over time by following Chapter 13 repayment plans.
    • This approach is especially beneficial if you have complex financial situations with high secured and unsecured debts.

    However, courts don’t always allow Chapter 20, and you won't get a second discharge in Chapter 13 following Chapter 7. Always consult a bankruptcy attorney for personalized advice.

    All in all, Chapter 20 offers a strategic solution to handle both secured and unsecured debts, giving you relief and a clearer path to financial stability.

    Who Qualifies For Chapter 20 Bankruptcy

    Chapter 20 bankruptcy isn't an official type, but a strategy combining Chapter 7 and Chapter 13 filings. You might qualify if:

    • You're eligible for both Chapter 7 and Chapter 13 separately.
    • Your unsecured debt exceeds $1,257,850 or secured debt surpasses $1,257,850.
    • You need to eliminate unsecured debts and restructure remaining obligations.

    The process involves:

    1. Filing Chapter 7 to discharge unsecured debts.
    2. Immediately filing Chapter 13 to:
    • Pay off non-dischargeable debts.
    • Remove second mortgages (lien stripping).
    • Catch up on mortgage or car loan arrears.

    Benefits include:

    • Reducing overall debt to qualify for Chapter 13.
    • Directing more income to priority debts.
    • Potentially saving your home from foreclosure.

    At the end of the day, you should consult a bankruptcy attorney to see if Chapter 20 suits your situation, as not all courts allow it and trustees may object.

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    What Debts Can Be Eliminated Through Chapter 20 Bankruptcy

    Chapter 20 bankruptcy combines Chapter 7 and Chapter 13 filings to maximize debt elimination. Through this strategy, you can:

    • Wipe out unsecured debts like credit cards and medical bills in Chapter 7.
    • Then use Chapter 13 to address mortgage arrears, car loan payments, recent tax obligations, and other non-dischargeable debts.

    This approach allows you to focus your remaining income on priority debts after eliminating low-priority obligations. Key benefits include:

    • Potentially qualifying for Chapter 13 by reducing your debt load.
    • Paying less to unsecured creditors in Chapter 13.
    • More time (3-5 years) to repay your remaining debts.
    • Protection from collection efforts during repayment.

    However, you won't receive another discharge for four years after Chapter 7. Courts may scrutinize Chapter 20 filings closely. Some debts, like student loans and child support, remain non-dischargeable. The process takes 3-5 years to complete.

    Lastly, consult an experienced bankruptcy attorney to determine if this strategy suits your situation and to navigate the complex filing requirements.

    How Long Does The Chapter 20 Bankruptcy Process Take

    Chapter 20 bankruptcy typically takes 3 to 5 years, combining Chapter 7 and Chapter 13 processes. Here's how it breaks down:

    1. Chapter 7 phase: 3-4 months
    • You discharge unsecured debts.
    • This reduces your overall debt load.

    2. Waiting period: Varies
    • You must wait 4 years after Chapter 7 discharge to get a Chapter 13 discharge.

    3. Chapter 13 phase: 3-5 years
    • You create a repayment plan for remaining debts.
    • This includes mortgage arrears, car payments, taxes, etc.

    Benefits:
    • You clear more debt than with single-chapter filings.
    • This process gives you time to catch up on secured debts.
    • You might be able to strip off second mortgages in some cases.

    Drawbacks:
    • It's a lengthy process.
    • You need extensive documentation.
    • The court scrutinizes for good faith.
    • Some debts remain, such as alimony, child support, and most student loans.

    Finally, consult an experienced bankruptcy attorney to navigate this complex strategy effectively and ensure the best possible outcome for your financial situation.

    What Are The Potential Drawbacks Of Chapter 20 Bankruptcy

    Chapter 20 bankruptcy, which combines Chapter 7 and Chapter 13, has several potential drawbacks you should consider.

    Firstly, you won't receive a Chapter 13 discharge if it's filed within four years of Chapter 7. Additionally, some courts may not allow you to strip second mortgages in the subsequent Chapter 13 case. There's also a risk that the court could dismiss your case if they view it as an abuse of the bankruptcy system.

    You'll face a strict 3-5 year repayment plan in the Chapter 13 phase, which could be challenging to stick to. Non-exempt asset equity might be lost during the Chapter 7 phase. Judges may also require strong proof of good faith, making approval difficult.

    Be aware of time restrictions due to waiting periods between filings, and the complexity of this strategy requires experienced legal guidance, increasing both costs and the potential for errors. You might also not qualify for Chapter 13 if your debt exceeds certain limits after Chapter 7.

    Big picture – navigating Chapter 20 bankruptcy involves understanding these potential drawbacks and ensuring you have strong legal support to manage the process effectively.

    How Does Chapter 20 Help With Mortgage And Secured Debt Issues

    Chapter 20 bankruptcy combines Chapter 7 and Chapter 13 to help you with mortgage and secured debt issues. Here's how:

    1. **Wipe out unsecured debts:** First, you file Chapter 7 to eliminate credit card balances and other unsecured debts.

    2. **Address remaining secured debts:** Then, you file Chapter 13 to reorganize leftover secured debts, like mortgages and car loans.

    3. **Stop foreclosure:** Chapter 13 halts foreclosure proceedings, giving you time to catch up on missed payments.

    4. **Strip second mortgages:** If your home's value is less than the first mortgage balance, you may reclassify second or third mortgages as unsecured debt.

    5. **Restructure car loans:** You can potentially lower interest rates or extend repayment terms on vehicle loans.

    6. **Interest-free repayment:** Chapter 13 allows you to repay non-dischargeable debts, like recent taxes, without interest over 3-5 years.

    7. **Overcome debt limits:** Chapter 7 can help you qualify for Chapter 13 by reducing your overall debt load.

    Be aware that not all courts allow this approach, and trustees may object. Overall, consult an experienced bankruptcy attorney to determine if Chapter 20 is right for you and permissible in your jurisdiction.

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    Can Chapter 20 Bankruptcy Stop Foreclosure

    Yes, a Chapter 20 bankruptcy can stop foreclosure. A Chapter 20 bankruptcy involves filing for Chapter 7 bankruptcy followed by Chapter 13 bankruptcy.

    Here’s how it works:
    • Chapter 7 discharges your unsecured debts, reducing your overall debt load.
    • Chapter 13 allows you to reorganize remaining debts, including mortgage arrears, with a repayment plan.

    You follow two main steps:
    1. File Chapter 7 to discharge unsecured debts.
    2. Immediately file Chapter 13 to catch up on missed mortgage payments and other debts.

    This strategy stops foreclosure temporarily because the Automatic Stay under 11 USC § 362 halts foreclosure proceedings during both filings.

    It’s crucial that you consult with a skilled attorney to navigate this complex process and determine if Chapter 20 is right for your situation. As a final point, contact an experienced bankruptcy lawyer to discuss your case and explore all available options.

    What Happens To Credit Scores After Filing Chapter 20 Bankruptcy

    Filing Chapter 20 bankruptcy impacts your credit score significantly, often dropping it by 100-200 points. Chapter 7 remains on your credit report for 10 years, while Chapter 13 stays for 7 years. During this period, getting new credit is challenging because lenders see you as high-risk.

    You can rebuild your credit score over time. Start by:

    • Making timely payments on existing debts
    • Using secured credit cards responsibly
    • Keeping credit utilization low
    • Monitoring your credit report for errors

    The negative impact of bankruptcy lessens over time, and you can see improvements within 1-2 years with good financial habits. To put it simply, while filing for bankruptcy is challenging for your credit score, you can rebuild it with patience and smart financial decisions.

    Are There Alternatives To Chapter 20 Bankruptcy

    Yes, there are alternatives to Chapter 20 bankruptcy. You can explore options like:

    • Debt Settlement: Negotiate with your creditors to reduce the total debt amount.
    • Debt Management Plans: Create a plan with a credit counseling agency to consolidate and lower interest rates.
    • Loan Modifications: Change your existing loan terms to reduce monthly payments.
    • Debt Consolidation: Combine multiple debts into one loan with a lower interest rate.
    • Credit Counseling: Get guidance on managing finances and establishing a budget.

    In short, explore these alternatives thoroughly and consult a financial advisor or bankruptcy attorney to find the best fit for your financial needs.

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