What is Chapter 20 Bankruptcy?

Chapter 20 bankruptcy is a slang term used in the bankruptcy world. It refers to the practice of filing for Chapter 13 bankruptcy immediately after completing a Chapter 7 bankruptcy. There is no official Chapter 20 that you can file under Title 11 of the United States Code. It is simply a combination of Chapter 7 and Chapter 13. Why would people do this? Great Question, so always start with the proposition that bankruptcy in its most organic form is purely financial planning for the future. It is a financial tool in the tool belt.

So Chapter 20 is like adding a tool to a person who can utilize the tool to achieve their goals. Chapter 20 usually allows debtors to discharge their unsecured debts through a Chapter 7 bankruptcy and then file for Chapter 13 in order to catch up on mortgage payments or pay off non-dischargeable priority debts.


To qualify for Chapter 13 bankruptcy, a debtor cannot exceed the limits of unsecured and secured debt. In other words, some people may not initially qualify for Chapter 13, thereby leaving them little choice but to file Chapter 7. However, you may be able to eliminate or reduce your unsecured debts by filing for Chapter 7 bankruptcy first.

Chapter 20 can allow you to focus on priority and secured debts. During a Chapter 13 bankruptcy, you propose a repayment plan to pay back your debts. Many people file for Chapter 13 to catch up on missed mortgage payments or to pay back other debts that can't be eliminated through Chapter 7. Depending on your income, expenses, and assets, you may also need to pay back a portion of your general unsecured debts such as credit card debt through your Chapter 13 plan. So, the idea of Chapter 20 should be explored if it is in the best interests of the individuals.


Although Chapter 20 has many benefits, it also has its drawbacks. When you receive a Chapter 7 discharge, you are unable to receive a discharge in your Chapter 13 case unless the case is filed at least four years after your Chapter 7 filing date. For many debtors, this isn't a huge consideration since all of their dischargeable debts have already been discharged in Chapter 7 bankruptcy. While this may sound confusing think about this. Let's say that you have $100,000 in credit card (unsecured non-priority) debt and $10,000 to the IRS from last year. You can file Chapter 7 to deal with the credit cards. However, you will leave the Chapter 7 with the IRS debt because that debt will be non-dischargeable.

So, you can use Chapter 13 to pay back the IRS debt. You will not get a discharge after completing your Chapter 13 plan but it really doesn't matter because you will have paid off the entire obligation owed to the IRS. Thus, you will have no debt to discharge.