A chapter 7 bankruptcy is a liquidation bankruptcy filing which results in the retention of exempt assets and the legal discharge of most debts. Relief under chapter 7 is limited as an individual debtor may only file for Chapter 7 once every eight years. A Chapter 13 bankruptcy is a reorganizational bankruptcy which serves a variety of different purposes.
There are circumstances where it is favorable to file for Chapter 7 and receive the discharge. Once the Chapter 7 discharge is entered, the debtor may file for Chapter 13 relief. This process is generally referred to as a Chapter 20. The term Chapter 20 is not found anywhere in the Code. While the strategic filings of a Chapter 7 followed by a Chapter 13 are not expressly authorized by the Bankruptcy Code, there are no provisions which prohibit it, provided it is done in good faith.
One circumstance where the Chapter 20 would be beneficial relates to certain non-dischargeable debts. If the Debtor has a payroll tax liability or an income tax liability which was not seasoned enough to be discharged in the 7, the filing of the Chapter 13 would give the Debtor the automatic stay for the duration of the case while the Debtor repaid the non-dischargeable debt.
It may be that when the Chapter 7 was filed, the debtor was behind on the home mortgage and the car payment. Once the Chapter 7 discharge is entered, the Chapter 13 would give the Debtor the Automatic Stay to stop the foreclosure and use the Chapter 13 to save the home and car.
There are several reasons why a Debtor would seek to file a Chapter 20. The Chapter 20 is a way to address a specific problem. The purpose of the Chapter 20 process is to buy time and opportunity to address non-dischargeable debts and save other secured property without the pressure of being chased by creditors.
There are certain requirements for scheduling when you file the Chapter 13. Despite the Chapter 7 discharge, you are required to schedule the creditors from your Chapter 7 case such that they have notice of the case and have the right to address the issue of good faith in the Chapter 20 filing.
The filing and coordination of the Chapter 20 process is complex and requires bankruptcy skills and legal acumen only found in skilled and experienced bankruptcy counsel. The Chapter 20 strategy requires careful planning and a specific understanding of what you are trying to accomplish.
