There is no such thing in our federal bankruptcy laws as Chapter 20 bankruptcy under which you can discharge debts. However, the phrase "Chapter 20" was coined to describe the process of first filing Chapter 7 bankruptcy and then adding a filing of Chapter 13 bankruptcy.
The Unofficial Bankruptcy
Not only does Chapter 20 not exist as an "official" form of bankruptcy protection, in 2005 Congress passed a law called the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) which now limits the likelihood that a debtor will able to successfully become a serial Chapter 7 and Chapter 13 bankruptcy filer.
- Prior to 2005, many debtors filed Chapter 7 bankruptcy to discharge their unsecured debt such as credit cards or medical bills and then rapidly (sometimes before the Chapter 7 bankruptcy was completed) filed Chapter 13 bankruptcy in order to protect their homes from foreclosure and catch up on missed payments using a court ordered Chapter 13 repayment plan.
- Debtors used the "Chapter 20" process to discharge their unsecured debt, immediately followed by their secured debt.
- This was also a popular plan because some debts that cannot be discharged under Chapter 7 (such as some types of student loans) can be often be included in a Chapter 13 repayment plan.
Fraud or Scam
As the first half of its name suggests, the Bankruptcy Abuse Prevention and Consumer Protection Act was enacted to prevent what was often seen as abuse of the bankruptcy system. Serial bankruptcy filings such as the ones that created a "Chapter 20" were among the things BAPCPA attempts to curtail.
- People have to qualify for Chapter 7 by either having an income below their state's median or by passing a "means test" that looks to determine if they have enough disposable income to participate in a debt repayment plan.
- There are now time limit rules between bankruptcy discharges; 7 years between Chapter 7 discharges and at least 3 years for a Chapter 13.
- This means that now if you filed Chapter 7 and received a discharge of your unsecured debt you would have to wait for about 3 more years to have your secured debt discharged with a Chapter 13 bankruptcy.
Even though it is not uncommon for someone who has filed a Chapter 7 bankruptcy to file bankruptcy again because they are poor money managers, such serial filing is often seen as an abuse of the system and many creditors will strenuously object to it and often bankruptcy judges will not allow debt discharge in those situations either.
Get Legal Help
Bankruptcy is a complex legal transaction that has a far reaching financial impact on your future. If you are struggling with debt, talk to an attorney who is experienced in bankruptcy law and who can advise you about whether or not bankruptcy is appropriate for you and which type is best suited to your personal situation.
