Chapter 20 Bankruptcy: Possible Benefits
Chapter 20 Bankruptcy: Possible Benefits
Filing for Chapter 13 after receiving a discharge in a Chapter 7 is colloquially known as a ‘Chapter 20 bankruptcy’. For those who have too much debt to qualify for a Chapter 13 ($360,475 in unsecured debt and $1,081,400 in secured debt), Chapter 20 bankruptcy presents a possible solution.While it would seem unlikely that most debtors would have unsecured debt greater than $360,475, it is actually quite likely if the debtor owns real estate in a high-priced market and took out one or more home equity loans. Because real estate prices have fallen so drastically, many properties in high-priced markets are now oversecured: in other words, the property is not worth as much as all of the debt secured by it.In Chapter 13 bankruptcy, those loan amounts that are over the value of the property generally become unsecured debts, which can have the effect of pushing some homeowners over the $360,475 limit. By filing a Chapter 13 immediately upon discharge from a Chapter 7 bankruptcy, these debtors can discharge their unsecured debt by and large, and then use the Chapter 13 process to force the mortgage lender into a repayment plan, pay off undersecured liens quickly, or deal with the debts that remain after a Chapter 7 due to non-dischargeability: all without running afoul of the limit on unsecured debt.Under the 2005 amendments to the Bankruptcy Code, debtors are barred from receiving a Chapter 13 discharge in a case filed within two years of a previous Chapter 13 discharge, or if they have received a discharge in a Chapter 7 case that was filed within the last four years.However, debtors aren’t barred from actually filing a Chapter 13 case within these timelines and are still entilted to receive all the benefits of Chapter 13 bankruptcy other than the discharge. While the 2005 amendments thus limited the benefits available to Chapter 20 debtors, the process is still available and can provide ample benefit to the right debtor.Chapter 20 does not present a disadvantage in terms of your credit, though it may seem so initially. A Chapter 7 filing can be listed on your credit report for 10 years from the filing date whereas a Chapter 13 can only be listed for 7 years from its commencement. This means that by the time the Chapter 7 filing is delisted from your credit report, the Chapter 13 bankruptcy will have already been expunged.Talk to a bankruptcy attorney about your situation if you think you could benefit from a Chapter 20. It’s a long-term commitment to your future, but could be well worth it.
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