Do Consumers File for Chapter 20 Bankruptcy?

Are you familiar with Chapter 20 bankruptcy in Oak Park? If you have not heard of Chapter 20 bankruptcy, you are not alone. It is not actually a chapter of bankruptcy relief under the U.S. Bankruptcy Code, but instead refers to a combination of Chapter 7 and Chapter 13 bankruptcy. When you add Chapter 7 and Chapter 13 together, in effect you end up with a “Chapter 20” bankruptcy. When consumers opt for Chapter 20 bankruptcy, they do not file for both Chapter 7 and Chapter 13 at the same time. Instead, debtors typically will file for Chapter 7 and then, almost immediately after receiving a discharge, will file for Chapter 13 bankruptcy.
What are the benefits of Chapter 20 bankruptcy, and why would any individual consumers want to take this route?
High Consumer Debts and Significant Secured Debt You Want to Keep can Make Chapter 20 Bankruptcy a Good Option
Why would anyone file for Chapter 7 bankruptcy, receive a discharge, and then turn around and file for Chapter 13 bankruptcy? In most situations, the debtor has too much secured or unsecured debt to file for Chapter 13 bankruptcy. Currently, if you have unsecured debts of $394,725 or more, or secured debts of $1,184,200 or more, you are not eligible to file for Chapter 13 bankruptcy regardless of whether or not you can pass the means test.
Given that the costs to file for Chapter 11 bankruptcy are high for consumers and may not produce the best result, consumers who want to retain their homes or motor vehicles may find that Chapter 20 bankruptcy is the best course of action. In other words, when debtors want the power of Chapter 13 bankruptcy to prevent foreclosure and to save a home but their debt makes them ineligible for Chapter 13 bankruptcy, seeking “Chapter 20” bankruptcy could be a solution.
How Chapter 20 Bankruptcy Works for Illinois Consumers
If a debtor has too much unsecured debt to qualify for Chapter 13 bankruptcy but can pass the means test, then she can go through the Chapter 7 bankruptcy proceeding and receive a discharge of unsecured debt. Now, once the Chapter 7 discharge happens, the debtor no longer has too much debt to file for Chapter 13 bankruptcy. As such, once the discharge of unsecured debt happens, the debtor can immediately file for Chapter 13 bankruptcy in order to save his or her house by getting extra time to make payments, or to make payments on secured debts that were not eligible for discharge under the Chapter 7 proceeding.
Keep in mind that if you do file for Chapter 20 bankruptcy, you will not be able to receive a discharge on the Chapter 13 bankruptcy immediately after receiving the Chapter 7 bankruptcy discharge unless four years pass. The benefit of Chapter 20 bankruptcy is that you can discharge a large amount of unsecured debt to make yourself eligible to file for Chapter 13 bankruptcy, thereby giving yourself time to pay down debts and/or to prevent foreclosure on your home.
Contact an Oak Park Bankruptcy Lawyer
If you have questions about Chapter 20 bankruptcy, a consumer bankruptcy lawyer in Oak Park can help. Contact the Emerson Law Firm for more information.
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