Legal Definitions - Chapter 20

Chapter 20 is an informal, colloquial term used in bankruptcy law. It describes a specific sequence of bankruptcy filings where an individual first files for Chapter 7 bankruptcy, receives a discharge of eligible debts, and then relatively soon after files for Chapter 13 bankruptcy.

This strategy is typically employed to address debts that could not be eliminated (discharged) in the initial Chapter 7 filing. These often include certain secured debts (like a mortgage or car loan that the debtor wants to keep and pay off) or specific types of non-dischargeable debts (such as some taxes, child support obligations, or student loans). By filing Chapter 13, the debtor can then propose a structured repayment plan to manage these remaining obligations over time.

Here are some examples illustrating how "Chapter 20" might apply:

• Example 1: Managing Non-Dischargeable Student Loans and Taxes

  Sarah has overwhelming credit card debt and medical bills, along with a substantial amount of student loan debt and back taxes. She files for Chapter 7 bankruptcy, successfully discharging her credit card and medical debts. However, her student loans and taxes are generally non-dischargeable in Chapter 7. To manage these remaining significant obligations, she then files for Chapter 13 bankruptcy, proposing a payment plan to repay the student loan arrears and tax debt over several years, making them more manageable.

  This illustrates "Chapter 20" because Sarah used Chapter 7 to eliminate her dischargeable unsecured debts, and then immediately followed with Chapter 13 to create a feasible repayment plan for her non-dischargeable student loans and tax obligations, which Chapter 7 could not address.

• Example 2: Protecting a Secured Asset Like a Car

  Mark faces severe financial distress due to job loss, accumulating significant credit card debt and falling behind on his car payments. He files for Chapter 7 bankruptcy, which successfully discharges his credit card debt. However, he wants to keep his car and needs to catch up on the missed payments. Since Chapter 7 doesn't typically allow for restructuring secured debts like car loans if he wants to retain the asset, he then files for Chapter 13 bankruptcy. This allows him to propose a plan to "cure" the arrears on his car loan and potentially modify the loan terms, ensuring he can retain his vehicle.

  This is a "Chapter 20" scenario because Mark first used Chapter 7 to clear his unsecured debts, and then utilized Chapter 13 to manage and protect a secured asset (his car) by creating a repayment plan for the debt associated with it, which was not effectively addressed by the Chapter 7 discharge.

• Example 3: Addressing Business-Related Tax Liabilities

  David owned a small business that failed, leaving him with substantial personal guarantees on business loans and significant unpaid business taxes (which are often personal liabilities for owners). He files for Chapter 7 bankruptcy, discharging the personal guarantee portions of his business loans that were unsecured. However, the tax liabilities are non-dischargeable. To prevent aggressive collection actions and to create a manageable payment schedule for these taxes, David then files for Chapter 13 bankruptcy, proposing a multi-year plan to repay the tax debt.

  This demonstrates "Chapter 20" as David first used Chapter 7 to eliminate dischargeable personal liabilities stemming from his business failure, and then immediately followed with Chapter 13 to establish a structured repayment plan for his non-dischargeable tax debts, which Chapter 7 could not resolve.