What is Chapter 20 Bankruptcy, and Should I File For It?

Have you heard of consumers filing for Chapter 20 bankruptcy? There is no such thing as this chapter of consumer bankruptcy under the U.S. Bankruptcy Code, yet consumers in Oklahoma sometimes talk about filing for Chapter 20 bankruptcy. What is Chapter 20 bankruptcy, and could it be the right choice for you?

Filing for Chapter 7 and Chapter 13 Bankruptcy

Chapter 20 bankruptcy refers to a situation in which a debtor files first for Chapter 7 bankruptcy, and then immediately files for Chapter 13 bankruptcy. Why would anyone do this? In brief, an Oklahoma debtor might qualify for Chapter 7 bankruptcy after passing the means test, but she might prefer the benefits of Chapter 13 bankruptcy, which is also known as the “wage earner’s plan.” Why not simply file for Chapter 13 bankruptcy instead of Chapter 7 bankruptcy? Sometimes a debtor’s unsecured debt is too high to qualify for Chapter 13 bankruptcy.

In order to be eligible for Chapter 13, you must have unsecured debt of less than $394,725 and secured debts of less than $1,184,200. If you do not qualify because of these debt limits, but you want to file for Chapter 13 bankruptcy in order to keep your home and mortgage, for example, then Chapter 20 might be right for you.

How Does Chapter 20 Bankruptcy Work?

To use what we call Chapter 20 bankruptcy, a debtor first files for Chapter 7 bankruptcy in order to discharge unsecured debts. After the discharge, the debtor can qualify for Chapter 13 bankruptcy, and she can immediately file in order to get caught up on her mortgage payments (or payments tied to other secured debt).

While the debtor likely will not be able to receive a discharge in the Chapter 13 case, this entire process may allow her to prevent foreclosure and to stay in her home.

Discuss Your Case with an Oklahoma Consumer Bankruptcy Lawyer

There are benefits to both Chapter 7 and Chapter 13 bankruptcy, depending on your situation. For example, if you are behind in your mortgage payments and facing foreclosure, Chapter 13 bankruptcy, as opposed to Chapter 7 bankruptcy, may allow you to stay in your home. Keep in mind that the Oklahoma homestead exemption is unlimited, which means you also may be able to stay in your home if you file for Chapter 7 bankruptcy. In some cases, however, you may need to file for both Chapter 7 and Chapter 13, as we discussed above.

If you need assistance, an experienced Oklahoma bankruptcy lawyer can help. Contact Deborah Brooks & Associates, P.C. to discuss your options with a dedicated consumer advocate.