Mythological Chapter 20: Is it Legal?

Español: Carátula capítulo 13

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Some people question whether of not the mythological Chapter 20  is legal. The Chapter 20 is named for when a debtor files a Chapter 7 and then soon after files a Chapter 13. Adding the two numbers associated with the bankruptcy types give you the mythological name.

2005 Law Changes Common Practices

In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act to help control bankruptcy serial filing and abuse of the system. It used to be common practice for a debtor with few assets other than a homestead to file a Chapter 7 to get all of their unsecured debts discharged, and then to immediately turn around and file a Chapter 13 to strip any second liens on the mortgage of their home. That is when the use of the mythological term of a Chapter 20 for such practices became a popular description of the move.

The new bankruptcy law determined when a debtor can file for bankruptcy protection after once filing. Under the 2005 law, a debtor cannot file a Chapter 13 after the discharge of a Chapter 7 until four years has gone by. Some bankruptcy courts today are challenging the ability to strip a lien after in a Chapter 13 after debts have been completely discharged in a Chapter 7. These moves by the bankruptcy court make it near impossible to enjoy the benefits of a mythological Chapter 20.

Handling Primary and Secondary Liens in the Bankruptcy Process

When filing a Chapter 13 before filing a Chapter 7, the primary lien of a secured loan continues through the bankruptcy in tact, but secondary liens can be stripped to make the secondary loan an unsecured loan if the primary loan is more than the current value of the secured property. The debt of a secured loan can be discharged once the Chapter 13 plan has been finished.

The Legal Effects on a Chapter 20 by the New Law Changes

In effect, then, the mythological Chapter 20 in some bankruptcy courts is illegal and in others, the maneuver seems to be legal. The only problem today of trying to put the Chapter 20 concept in place is waiting the four years to be able to file the Chapter 13 and strip the secondary liens, and then finding a bankruptcy court who is willing to allow the practice. While waiting four years to file a Chapter 13, mortgage lien holders have plenty of time to petition the bankruptcy court to remove the stay and start the foreclosure process.

Determining Which Bankruptcy is Right for You

In determining which bankruptcy is right for you, the complicated law changes have forced most Pro Se wannabe filers into having to consult with experienced bankruptcy lawyers in order to determine how the bankruptcy law changes have affected your situation. In addition, it is now important for you as a wannabe Chapter 20 filer to be familiar with which bankruptcy court will allow the concept to play out.

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