What is Chapter 20 Bankruptcy?

For starters, ‘Chapter 20’ bankruptcy is not one process like other forms of bankruptcy. Chapter 20 is actually a combination of both chapter 7 and chapter 13 bankruptcies. According to the website of Erin B. Shank, PC, chapter 7 is filed first in order to discharge unsecured debts before a chapter 13 is filed in order to set up a payment plan to pay off your remaining debts, which is often unpaid taxes. There are a couple benefits and reasons why chapter 20 bankruptcy might be the best option for you.

One of the foremost benefits of chapter 20 bankruptcy is that it can help you to qualify for chapter 13. Chapter 13 bankruptcy is beneficial because it allows you to set up a payment plan over the course of three to five years so you can pay off your debt, or at least catch up on payments, without stretching yourself too thin or having to suffer from relentless collectors. However, chapter 13 has debt limits in its qualifications. If your debt exceeds the limits, then you will be unable to file for chapter 13. Thankfully, chapter 20 can be a remedy for this. The first step in chapter 20 is filing for chapter 7, which can discharge some, or all, of your unsecured debt. This can make it to where you are within the limits and able to file for chapter 13.

Chapter 20 bankruptcy will also allow you to focus primarily on your priority and secured debts, such as your mortgage payments or unpaid taxes. If you filed only a chapter 13, then you may be required to also pay back a portion of your unsecured debts, such as credit cards, on top of your priority and secured debts. However, in chapter 20, you would first file for chapter 7, which would eliminate all or most of your unsecured debts. This would leave you with only the most important and serious debts to pay back, and allow you to commit to a payment plan that will get you out of debt faster or be more manageable for you over time.

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