In certain situations, you may benefit from filing for Chapter 13 bankruptcy after you have filed for Chapter 7. Filing Chapter 7 and 13 is commonly referred to as Chapter 20, bankruptcy. Chapter 20 bankruptcy is ideal for individuals who would like to discharge their debts and come up with a repayment schedule for the undischarged debts.
Get in touch with us if you are looking for a dedicated Los Angeles Bankruptcy Lawyer. We at the Los Angeles Bankruptcy Attorney know all the intricacies required when filing for bankruptcy, and how you can use various approaches to minimize your debts and secure your finances.
What is Chapter 20 Bankruptcy?
It is stressful to file for bankruptcy, especially if you do not have an attorney to help you. Filing for a Chapter 20 bankruptcy will require you to have legal expertise and knowledge since you must complete some complicated paperwork. You can reach out to a bankruptcy attorney to discuss your options if you believe that a Chapter 20 bankruptcy can salvage your situation.
You will not find anything if you look up for Chapter 20 in the Bankruptcy Code. What you will find in the code is Chapter 7, Chapter 11, and Chapter 13.
Technically, Chapter 20 is not legally recognized as a type of bankruptcy. Chapter 20 is slang, and it is a term which most lawyers use to describe a situation in which a person files for two types of bankruptcy, Chapter 7 and Chapter 13, almost simultaneously.
Therefore, when you file for Chapter 20, it implies that you have filed for both Chapter 7 and Chapter 13 within the same timeframe. You will have to complete all the procedures required for Chapter 7 and Chapter 13. This means that if you are not eligible to file for either Chapter 7 or Chapter 13, then you will not be able to file for Chapter 20.
Why you Should File for Chapter 20 Bankruptcy
Various situations may make you want to file for Chapter 20 bankruptcy. Often, most individuals who would like to file for Chapter 20 bankruptcy are looking for a way to discharge their vast debts and find a suitable repayment plan for the debts that the court cannot discharge. Since you must file for both Chapter 7 and Chapter 13 when filing for Chapter 20, you must know when to file for the two Chapters.
Why you Should File for Chapter 7 Bankruptcy
You should opt for Chapter 7 bankruptcy if you intend to clear away most of your debts. Chapter 7 is the most common type of bankruptcy filed in Los Angeles. It is also significantly cheaper when compared to other bankruptcy types.
Chapter 7 bankruptcy is also referred to as ‘liquidation.’ When the court declares you bankrupt under Chapter 7, you may be left debt-free.
Sometimes, Chapter 7 may not salvage your situation. When you've filed for Chapter 7, the bankruptcy trustee will sell all your non-exempt property and utilize the money obtained from the sale to pay your creditors. Of course, you will protect your exempt property from this sale.
Because you’ve given away your non-exempt property to be sold, the court will discharge all your unsecured debts. This means that you will not be liable for these debts, and the court will issue an order to refrain creditors from attempting to collect money from you. You will receive a discharge within 3-4 months after you have filed for Chapter 7 bankruptcy.
On the flipside, Chapter 7 bankruptcy does not discharge certain debts that may wreak havoc to your financial situation. Some of these debts include child support payments, taxes, and student loans. Chapter 7 will also not discharge you from car payment or mortgage loans, and it cannot force creditors whose debts have not been discharged to allow you more time to pay them.
Why you Should File for Chapter 13 Bankruptcy
You can opt to file for Chapter 13 bankruptcy to be relieved temporarily from debts Chapter 7 does not resolve. When the court declares you bankrupt under Chapter 13, you will receive a revised payment plan to settle your debt issues.
Usually, Chapter 13 increases the length of your repayment plan for 3-5 years. It also reduces the value of the monthly installments you are supposed to make. The length of your repayment plan will depend on the amount of your income. If your income exceeds the state median income, the court will assign you a repayment plan of five years. On the other hand, if your income is less than the state median, you will receive a three-year repayment plan.
Unlike Chapter 7, which focuses on eliminating your debts, Chapter 13 will assist you in reorganizing your debts into sizeable chunks that you can pay with ease. It is expensive to file for Chapter 13 bankruptcy, but it may be the best choice if you believe that you may be unable to pay your creditors per the agreed timeframes.
Chapter 13 will force your creditors to permit you to freeze or cure car loans or mortgages temporarily. Chapter 13 may strip second, unsecured mortgages, and order lenders to allow you sufficient time to repay debts that have not been discharged.
However, the main disadvantage of Chapter 13 bankruptcy is that the court will not issue you a discharge quickly when compared to Chapter 7. Individuals who have too many debts may not be eligible to file for Chapter 13 bankruptcy. Chapter 13 can also worsen your financial situation since it increases the length of the period for debt repayment. When the debt repayment period increases, the debt accrues more interest. This interest may double the total debt amount and strain you financially. Moreover, the court may not permit you to pay your creditors earlier than what the repayment plan dictates if your income increases.
Chapter 20 Bankruptcy Bad Faith Objections
You should take extreme caution if you intend to file for Chapter 20 bankruptcy so as not to pay back general, unsecured creditors. You should only file for Chapter 20 bankruptcy if you are in a dire financial situation, and you need help to pay back your debts. This is because the bankruptcy trustee or the court may raise a bad faith objection to your filing and indicate that you are abusing the bankruptcy system.
When you receive the bad faith objection, you will be obligated to show the court why you have filed for Chapter 20 bankruptcy. You will have to give an apparent reason, which should not be to avoid repaying your unsecured creditors. If you fail to do so, you may face serious consequences, including a dismissal of your bankruptcy application, loss of your right to debt discharge, and loss of your non-exempt assets.
Remember that there is no legal provision of Chapter 20 in California and the entire United States. Chapter 20 is just a strategy that you can use to gain an advantage over your creditors, and most bankruptcy courts frown upon it. You should be prudent enough to reach out to a knowledgeable bankruptcy attorney before initiating a Chapter 20 filing.
What is Chapter 11 Bankruptcy?
Besides Chapter 7 and Chapter 13, you’ve probably also heard about Chapter 11 bankruptcy. Chapter 11 bankruptcy may not be the perfect fit for you, based on various reasons.
It is mostly corporations who file for Chapter 11 bankruptcy, and not individuals. Filing for Chapter 11 is a complex, expensive, and lengthy process. As an individual, you can only opt for Chapter 11 bankruptcy if you have large, unsecured debts that make you not eligible to apply for Chapter 13, or you would like to reorganize your real estate property. Otherwise, you will be much better off filing for Chapter 7, Chapter 13, or Chapter 20.
Procedure for Filing for Chapter 20 Bankruptcy
If you've decided to file for Chapter 20 bankruptcy, you must first check whether you qualify for both Chapters 7 and 13. You would not be eligible to file for Chapter 7 if you had already filed for it in the past eight years. Also, you won't qualify for Chapter 13 if you had filed for it in the previous six years.
For you to file for either Chapter 13 or Chapter 7 bankruptcy, you should pass a test to ensure you will be able to repay your creditors. If you fail this test, you will be considered ineligible for both Chapter 7 and Chapter 13. You will not qualify for either Chapter 7 or Chapter 13 bankruptcy if your total income is less than the state median or you owe non-consumer debt primarily. You must show the court that you have sufficient income to keep up with your repayment plan if you intend to file for Chapter 13 bankruptcy.
To initiate the procedure for filing for Chapter 20 bankruptcy, you must first file for Chapter 7 bankruptcy. You will file for Chapter 7 bankruptcy at the courthouse where you carry out your business or reside via a petition. You will file the petition together with a complete account of your liabilities and assets and a declaration of your current expenditures and income. You will also require a statement of financial affairs and records of your executory contracts and unexpired leases.
Your court trustee will need copies of your most recent tax information. If you've been mainly saddled with consumer debt, you will have to file a certificate that shows you have undergone credit counseling, and you received the debt repayment plan in the credit counseling process. Also, the court will need your employer’s proof of payment, your monthly income statement, and accurate details on the situation of your current federal or state student debt. If you are married, you and your spouse may file for Chapter 7 separately or jointly.
Lastly, you will be required to fill out the Official Bankruptcy Forms the government provides. In this form, you will list all your creditors, the nature of your debts, and all your property. You will also have to include a comprehensive income statement, and all your daily living expenses, including medical care, clothing, utilities, food, transportation, shelter, and taxes.
After you have filed for Chapter 7 bankruptcy, you can then initiate the process for Chapter 13 bankruptcy. You will file for Chapter 13 at the same courthouse, so you won’t be required to provide extra information other than what you gave the court when filing for Chapter 7. However, some courts may require you to provide more details, though this information will be mostly redundant.
Advantages of Chapter 20 Bankruptcy
Chapter 20 bankruptcy can easily ease your financial burdens, especially if you have significant debts. When you combine Chapter 7 and Chapter 13, you will benefit from both types, without worrying about the disadvantages of filing for either Chapter 13 or Chapter 7 alone.
For instance, if you are not eligible for Chapter 13 because you have significantly huge debts, you will be required to pay those debts even if you are not successful in filing for Chapter 7. However, if you had opted for Chapter 20, Chapter 7 will lower your debts to what is below the limit of Chapter 13. Though Chapter 7 and Chapter 13 are crucial in helping you keep track of your finances by themselves, Chapter 20 may help you to become completely debt-free. When you file for Chapter 20 bankruptcy, you will realize all the benefits of Chapter 7 and Chapter 13 in one package. Chapter 20 bankruptcy is incredibly helpful if you require additional time to repay your debts, but your level of debt disqualifies you for filing for Chapter 13 bankruptcy.
When you first file for Chapter 7 bankruptcy, you will reduce your debts to reach a level within the limit required to file for Chapter 13. Chapter 13 bankruptcy won’t give you a further discharge of your debt than what Chapter 7 bankruptcy offers, but you will receive extra time to repay your loans that Chapter 7 did not discharge.
Additionally, filing for Chapter 7 before filing for Chapter 13 may enable you to allocate your financial resources towards payment of debts that Chapter 7 alone could not discharge. This way, you will reduce the length of your repayment plan, and it will be easier for you to pay back large chunks of your debt. Also, Chapter 20 may strip your unsecured second mortgages, depending on the court where you have applied for bankruptcy. Some courts may refuse to discharge your unsecured, second mortgages, and you should consult a bankruptcy attorney who can offer you professional legal assistance on this endeavor.
Limitations of Chapter 20 Bankruptcy
Chapter 20 bankruptcy may seem to be the perfect fit for your situation, but it has its shortcomings. For instance, if Chapter 7 discharges some of your debts, the court may not issue you another discharge when you file for Chapter 13 unless you had filed for Chapter 7 more than four years ago. When you file for Chapter 13 after you have filed for Chapter 7, your primary intention should be to get sufficient time to repay your creditors instead of receiving a discharge of your debts.
Furthermore, some Los Angeles courts may refuse to allow cramdown or lien stripping, which may be your major incentive for filing for Chapter 20. This is why you should speak to an experienced bankruptcy attorney before filing for Chapter 7 to ensure the court where you reside or conduct your business permits these maneuvers. You should also remember that you will not be able to protect your business or keep all your properties when filing for Chapter 20 because the court will hand over all your assets to a bankruptcy trustee.
When to File for Chapter 20 Bankruptcy
The most suitable time to file for Chapter 20 bankruptcy is when you have increasing prospects. When you suddenly gain access to a significantly high income or your property has increased in value, that will be the best time to file for Chapter 20 bankruptcy to reduce most of your debts.
If your net worth or income starts to increase dramatically, the judge who presides over your Chapter 13 filing may increase the value of your payments, after he/she has confirmed that you have increased assets. It will make much more sense to file for Chapter 20; if you believe that you will be able to comfortably repay your creditors soon, to avoid the judge issuing you onerous terms just because you have increased assets.
Find a Chapter 20 Bankruptcy Attorney Near Me
If you believe that filing for Chapter 20 is the right move to ease your financial situation, you should talk to a Chapter 20 bankruptcy attorney. Filing for Chapter 20 bankruptcy involves complicated paperwork, and you may be unable to complete the application without the help of an attorney. Just one simple mistake may result in the failure of your attempts.