Chapter 20 Bankruptcy in California
Many people have heard of the various Chapters of the U.S. Bankruptcy Code. Typically, Chapter 7 bankruptcy is the most familiar type of bankruptcy followed closely by Chapter 13 and then Chapter 11. However, many people have also heard of a type of bankruptcy known as “Chapter 20.” However, if you were to look up Chapter 20 in the Bankruptcy Code, you would not find it. While there is no such thing as a Chapter 20 Bankruptcy, sometimes a debtor may want to file a Chapter 7 followed by a Chapter 13. It just so happens that 7 + 13 = 20.
Thus, Chapter 20 is a colloquial way of describing a particular type of bankruptcy filing. In this case, it is a Chapter 7 bankruptcy filing followed closely by a subsequent Chapter 13 filing. For many individuals, a Chapter 20 filing presents a viable path to a fresh start. However, a Chapter 20 filing is more complex and less straightforward than many bankruptcy filings. Guidance from a strategic bankruptcy lawyer, such as those of the Bankruptcy Group, can help you understand the process and what you can expect.
Why would a debtor want to file a Chapter 20?
When a debtor consults with a qualified bankruptcy attorney, an analysis will be made concerning which chapter of the Bankruptcy Code is likely to achieve the best results for the debtor. In some instances, the debtor may achieve a better result in filing either a Chapter 7 or a Chapter 13 bankruptcy, but he or she may not qualify for one or the other.
An example would be if a debtor wants to keep his/her house, which is in foreclosure, but has too much unsecured debt to qualify for a Chapter 13 case. Here, a Chapter 20 bankruptcy might be appropriate.
The strategy would be to file a Chapter 7, allowing the debtor to discharge the unsecured debt. The Chapter 7 filing would put a stop to the foreclosure process as a result of the automatic stay. Once the unsecured debt is discharged, the debtor could then immediately file a Chapter 13 to keep the automatic stay in effect. Although the debtor would not be able to discharge any secured debt through a Chapter 13 in this hypothetical, the debtor would be in a position to cure the default on the home mortgage over a period of up to a five years to take the home out of foreclosure status. If the arrearages on the defaulted home mortgage are paid off early or the loan is modified, the debtor could dismiss the Chapter 13 case early. The combined use of Chapter 7 and Chapter 13 is what makes this a Chapter 20 filing.
However, there are a number of permutations of this strategy that can be applied based on the circumstances. Another possible Chapter 20 strategy would involve eliminating personal liability for a second mortgage in the Chapter 7 case, followed by a lien strip in the Chapter 13 if the first mortgage loan balance (deed of trust) is greater than the fair market value of the home. The effect of this Chapter 20 strategy is the discharge liability and liens on the second mortgage (deed of trust).
Other reasons why a Chapter 20 strategy may be beneficial include the debtor’s ability to restructure his or her vehicle loan debt (cramdown), and restructure tax liabilities. Chapter 20 bankruptcy in the hands of an experienced and tactical attorney can provide a significant number of options and legal tools to address one’s debts.
Work with an Aggressive and Strategic Sacramento Bankruptcy Attorney
Experienced bankruptcy attorneys like those at The Bankruptcy Group can assist you in determining which bankruptcy chapter is best for you. In some cases, a straightforward Chapter 7 or Chapter 13 bankruptcy filing may be most likely to result in a favorable outcome. However, in other scenarios, it may be both a Chapter 7 and a Chapter 13 as part of the coordinated strategy — Chapter 20 – that is most likely to correct debt problems for the individual.
At The Bankruptcy Group, our strategic and dedicated lawyers are happy to sit down with you and discuss your situation and goals before making any legal recommendations. We understand that bankruptcy is complex and that the small details you tell us can make a huge difference. We never recommend a bankruptcy plan until we have a firm grasp of your situation and will take the time to explain how our advice will affect you. To schedule a free and confidential legal consultation with our legal team call The Bankruptcy Group at 1-800-920-5351 or contact us online today.