Can You Legally File A Chapter 20 Bankruptcy?

Legally, a Chapter 20 bankruptcy does not exist

. When you hear lawyers talking about Chapter 20, what they are really talking about is someone filing a Chapter 7 bankruptcy immediately followed by filing a Chapter 13 bankruptcy. Seven plus thirteen equals twenty - get it? Sort of a lawyers inside joke.

But, you may ask, after going through one bankruptcy, why would anyone want to file for another one right away? It most comes down to the limitations of each type of bankruptcy. Each type of bankruptcy is geared towards helping the filer achieve a certain specific outcome. And sometimes, multiple outcomes need to be achieved and a single bankruptcy filing is not enough.

The purpose of filing for a Chapter 7 bankruptcy is simple. It is to wipe the financial slate relatively clean to give you a chance at a fresh start. For instance, if you owe twenty thousand dollars in credit card bills and have just lost your job with poor job prospects on the horizon, you are in a monumental financial hole.

And, it gets even worse. As your credit card fees and penalties for late payments begin to pile up, it becomes clear very rapidly that there is little hope that you will realistically be able to repay the debt. In this case, you may file a Chapter 7 bankruptcy to have the twenty thousand dollar debt against you discharged. And your debt load has been suddenly reduced by twenty thousand dollars.

As many people are disappointed to discover, however, not all debts are eligible to be discharged. For instance, in most cases mortgages, which are a huge part of an average family's debt, cannot be discharged. Income tax debts, child support, spousal support, and others are also examples of debts which are normally not discharged in a Chapter 7 bankruptcy. So while you will undoubtedly end up owing less once your Chapter 7 bankruptcy runs its course, you will still be responsible for the other non-dischargeable debts that you have incurred.

But, there is a method to the seeming madness of filing a Chapter 13 bankruptcy immediately. And that is to give you the opportunity of paying off the debts that you were unable to have discharged - but to do it in a structured way. For example, assuming that once your Chapter 7 is complete you still owe thirty thousand dollars on your mortgage with a monthly mortgage payment of $480. Filing for Chapter 13 will not get rid of this debt. But what it may do is to allow you to restructure your repayment to the bank. So, you may end up paying a more affordable $400 a month instead of $480. And at the end of the Chapter 13 period, usually three to five years, you will have paid off all your creditors.

Can You Legally File A Chapter 20 Bankruptcy?

By: David Hoyer

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