What is a Bankruptcy Chapter 20?

There is no chapter 20 under the bankruptcy code. However, a chapter 20 is common in the bankruptcy courts. How can this be? It’s actually pretty simple. A chapter 20 is comprised of two bankruptcy filings: a chapter 7 bankruptcy followed by a chapter 13 bankruptcy. The two numbers add together to 20, so the colloquial name stuck.

The most wonderful thing about the bankruptcy code is the infinite possibilities that are provided to someone who is not only eligible to file bankruptcy but can use the bankruptcy code to further their financial goals. When it is appropriate, individuals can file a chapter 7 bankruptcy to obtain a discharge of all of their dischargeable debts, and then follow it up with a chapter 13 to pay either one or more creditors whose debts could not be or were not discharged.

Chapter 20 for Fighting Multiple Debts

For example, let’s say a client has an extensive amount of credit card debt and recent IRS debt that is non-dischargeable. After doing a thorough analysis, we may present them with the option of filing a chapter 20. If they were eligible to file the chapter 7 and eligible to discharge all of the unsecured credit card debt, that could put them in a much better financial position to enter chapter 13 and deal with the IRS debts there. Because the IRS debt is non-dischargeable, the IRS debts would survive the chapter 7 discharge. Rather than leaving the client to deal with the IRS on their own after the chapter 7 case closes, the individual may opt to file a chapter 13 bankruptcy re-organization immediately or shortly after the chapter 7 is completed and pay the IRS through a chapter 13 plan. The chapter 13 plan would be monitored by the bankruptcy court, and the chapter 13 debtor would be assured that once their chapter 13 plan was completed that all of the IRS debt would have been satisfied.

Student Loans & Chapter 20 Bankruptcy

Another example of when a chapter 20 is possible is when an individual has extensive student loans, which are non-dischargeable. Let’s say that a person has $200,000 in student loans with a disposable income each month of $500. There is no way possible that $500 a month would ever pay off all that student loan debt. The person could file a chapter 7 to get rid of all their dischargeable debts and follow it up with a chapter 13 wherein they would pay their $500 per month to the student loan companies through a chapter 13 reorganization. The interesting part about chapter 13 is that the debtor is not entitled to a discharge, but they really don’t need a discharge anyway because the debt that they are paying off is non-dischargeable. The individual is just using the bankruptcy code to protect themselves while they were making payments on the student loan debt.

Can You Use Chapter 20?

While there is no chapter 20 under the bankruptcy code, a quasi-chapter 20 is used frequently throughout the United States by experienced bankruptcy attorneys to protect their clients whose circumstances could benefit from a chapter 20. If you are considering filing for bankruptcy protection and would like a complimentary strategy session with an expert bankruptcy attorney, please feel free to reach out to our team at Dellutri Law Group. We are here to assist you with creative solutions to your financial issues. Our goal is always to keep you moving forward to a brighter financial future.