Don’t bother looking, there really isn’t a Chapter 20 in the Bankruptcy Code. A Chapter 20, is negative term that Chapter 13 Trustees use when a debtor first files a Chapter 7 Bankruptcy, receives a Discharge of all his debts and then he turns around and files another bankruptcy case under Chapter 13 within weeks or months of the Chapter 7 Discharge. Its simple math, Chapter 7 plus Chapter 13 = Chapter 20! But wait, why would a debtor do that, since under Bankruptcy law, if he files a Chapter 13 case within 4 years of filing a Chapter 7 case, he is not eligible to receive a Chapter 13 discharge?
Why would someone want to file a Ch. 20 Bankruptcy?
There are many good reasons that a debtor may choose to file another bankruptcy case so soon after receiving a Chapter 7 discharge. But, one major reason is to “Strip Off” an unsecured Junior Lien. These Junior Liens are often referred to “underwater” liens because the value of the property is worth less than the amount that is due on the debtor’s “first” or primary mortgage. There is no equity for the underwater lien to attach so they are removed and the debt is paid just like any other unsecured debt. You cannot strip a lien in a Chapter 7 case, everyone knows that, but you can in a Chapter 13 case, and if the Chapter 13 case is completed, the lien is satisfied and the creditor has to take it off.
What do the Trustee’s think?
Chapter 13 Trustees will often object to Chapter 20 cases because they do not like Chapter 20 cases. They think that they are nearly always a debtor’s attempt to abuse the bankruptcy code. Debtor’s attorneys, on the other hand, say that it’s just good lawyering, and a creative use of the Bankruptcy Code. Trustees argue that when a debtor files a Chapter 13 case filed within a 4 years of a Chapter 7 case, he is not eligible to receive a final discharge and without the final discharge, the case is not competed and the lien is not stripped. But, in a opinion that brings very good news to consumer debtor’s facing crushing mortgage debt, the 4th Circuit Court of Appeals stated that “we find nothing in the Act to suggest that Congress intended to bar lien-stripping of worthless liens in Chapter 20 proceedings.”
What does this mean for me?
This decision adds another tool to your consumer bankruptcy attorney’s toolbox. Resnick & Moss, P.C. will use all the tools it has to help you make the right choices and achieve the best outcomes. The decision to file a Chapter 7, Chapter 13, or a Chapter 20 bankruptcy case is a complicated one.
For that reason, it is important to get the help that you need from the attorneys at Resnick & Moss, P.C. Please call them at (248) 642-5400 for a free telephone consultation.