While many Georgia residents are trying to avoid their first Chapter 7 or Chapter 13 bankruptcy for various personal reasons, some are planning to have one of each—consecutively. That’s probably because their bankruptcy attorneys have advised them of a strategy known as a “Chapter 20” bankruptcy. Chapter 20 is not a real chapter under the Federal Bankruptcy Code. It is called that because it combines a Chapter 7 bankruptcy with a Chapter 13 bankruptcy, and the two numbers total 20. While there are a few different dual bankruptcy scenarios, we’re going to describe a common one here to demonstrate how a Chapter 20 works.
A debtor decides to file Chapter 7. This allows him to discharge all of the debt that he or she is able. However, not all debt is dischargeable under Chapter 7 bankruptcy. For instance, student loans, child and spousal support, and certain taxes cannot be discharged in Chapter 7 bankruptcy. If the debtor has remaining balances that fall under these categories, he or she may then opt to have his or her GA bankruptcy attorney file a Chapter 13 bankruptcy. Under Chapter 13, these debts won’t be discharged, but they will be subject to a three to five year payment plan. Sometimes this is a much better prospect for the debtor.
Consider the following scenario. A Cumming, GA homeowner becomes financially insolvent. Along with his dischargeable debt, he still owes the majority of the balance of his student loan, back taxes, and penalties. He does have a substantial amount of dischargeable debt, but the real problems are the student loan and back taxes. With a Chapter 20, he can rid himself of the dischargeable debt during the first phase, and work out a payment plan for the student loan and taxes during the second.
Another reason a debtor might attempt this strategy is to save his/her home after receiving a Chapter 7 discharge. Perhaps the debtor was months behind on his mortgage and filed Chapter 7 to discharge $50,000 in credit card debt. If the debtor’s Chapter 7 closes without the bank having yet foreclosed on the property, but subsequently sends the debtor a foreclosure notice, the debtor could actually file Chapter 13 to pay off the mortgage arrears. The debtor in this scenario will have already discharged all of his credit card debt, so even if the Chapter 13 plan fails, it will not impact the debtor’s Chapter 7 discharge of his credit card debt.
This double bankruptcy strategy is not ideal for every situation. Before committing to any type of bankruptcy, you should contact a Georgia bankruptcy lawyer.