Looks like the old "Chapter 20" is still viable

[keepmine]

At least in the 4th circuit.

http://west.thomson.com/bankruptcy/newsletter/2008-02-20.aspx

[phoenyx]

Very interesting ruling! Nice find!

Too bad even if they let you file a Chapter 13 after your 7, that you can't get a discharge in 13. But, if this winds up being allowed, I'm sure some people would benefit from the crippled version of a "Chapter 20".

[keepmine]

Very interesting ruling! Nice find!

Too bad even if they let you file a Chapter 13 after your 7, that you can't get a discharge in 13. But, if this winds up being allowed, I'm sure some people would benefit from the crippled version of a "Chapter 20".

Absolutely will benefit a few filers. While you can't get the "super discharge" {both the 7 and 13 are discharged}, you do get the automatic stay protection in the 13 and a chance to get caught up on the secured debt.

[jnjw]

Wow!

I hope this isn't a stupid question, but if that person is in a 5-year plan, would they still be allowed a discharge at the end of 5 years since it will have been more than 4 years since their Chapter 7?

[keepmine]

My interpetation is, they can't get a discharge because, they go by filing dates. But, they do get the benefit of the protection of the automatic stay while they get their secured debts squared away.

[jnjw]

Yeah, I think you're right. I remember reading something about that not long ago - like you can't be granted a chapter 7 discharge a second time if you had filed a previous chapter 7 within 8 years or something.

But at least that person has protection! That is definitely worth it.

[nytstyk]

Hi, I am confused. It looks like we our going to file a chapter 20; chp 7 followed by a 13. What does "discharge" mean? If we file and are granted the 7 will it or, can it or, when will it be discharged? If we then file the 13 and complete the 5 year payment plan won't it all be discharged?
Ultimately, won't there be a time when we will be entirely "free" of any creditors or obligatioins, gov't or otherwise, after the 7 and 13 are successfully competed by us?
Don't understand all the language and the laws of this yet. Thanks for any clarifications.

subdued.

[HHM]

If you do a chapter 20... (you don't actually file both a 7 and 13 at the same time).

You first file a chapter 7, and complete the chapter 7. Pretty much the day after you receive the chapter 7 discharge, you turn around and file a chapter 13. But as others have pointed out, the various time restrictions on the ability to get a discharge go off of "filing" dates.

The "catch" under the new law is you cannot get a discharge of your chapter 13 (under the old law, you could discharge certain debts in a chapter 13 that you could not discharge in a 7, and there was no retriction on your ability to get a chapter 13 discharge under the old law, you could file chapter 13 as often as you liked). The other challenge is actually qualifying for the initial chapter 7, after all, if you "can" file a chapter 13, it begs the question of whether you can really qualify for a 7.

The new chapter 20 is really for people with priority debts (like taxes), or hefty arrears on secred debt. Basically, for a chapter 20 to work, you must be able to pay off 100% of the claims that are included in the chapter 13. If you leave a balance on the priority claims at the end of the chapter 13, you will still owe that balance (because you do not get a chapter 13 discharge).

Also, although other BK districts may follow suit, the decisions in the above link were in the 4th District and thus, only have binding authority in that district. (WV, VA, MD, NC and SC)

[southernbelle]

I live in Louisiana and don't know if they will even allow a Chapter 20, but I have a Chapter 20 question. I read on another thread that said after you file the non-dischargeable 13 immediately after the chapter 7, all future earnings are subject to the BK estate.

What does that mean? If the 13 is defaulted on, does the trustee have control to claim any future earnings up to the amount remaining to be paid on the plan or what can they do to you?

[HHM]

I live in Louisiana and don't know if they will even allow a Chapter 20, but I have a Chapter 20 question. I read on another thread that said after you file the non-dischargeable 13 immediately after the chapter 7, all future earnings are subject to the BK estate.

What does that mean? If the 13 is defaulted on, does the trustee have control to claim any future earnings up to the amount remaining to be paid on the plan or what can they do to you?

Probably not,

If you default on a 13, regardless if the 13 can be discharged, the trustee would simply move for dismissal.

[southernbelle]

(Another stupid question) Does that mean that you just handle the leftover payments outside of the plan and make arrangements yourself. If that's true, I'm finding it hard to see the downside of the modified 13 with all of the tax debt I have.

[HHM]

Well, this is probably somewhat uncharted waters to some degree. The new law is only 2.5 years old, so there probably have not been enough cases to see what would happen. Also, the chapter 13 is not really a "modified" 13, it is still a full blown 13, it is simply that because you received a discharge from a 7 within four years of filing the 13, you do not "qualify" for a chapter 13 discharge.

On the one hand, I am fairly confident that a defaulted non-dischargeable chapter 13 would simply be dismissed as would any chapter 13 that was in default. But, as you pointed out, there is this pesky aspect of a chapter 13 whereby future earnings are part of the BK estate. The question then, does the chapter 13 trustee have the power to force payment...I don't think they do (but I could see some arguments either way)

First, if the 13 ever got to that point, you still have the option to voluntarily dismiss.
Second, this would be a weird intersection of state and federal law. Garnishment ability is controlled by state law and only "judgement creditors" can garnish. Thus, even though the Chapter 13 trustee "represents" your creditors, and under the BK code has the power "as if" he was a judgment creditor, there is NO state judgment that can be used exercise state executory remedies. I cannot think of a mechanism whereby the chapter 13 trustee could get a judgment against the BK debtor, about the only remedy available to a chapter 13 trustee is dismissal (possible dismissal with prejudice).

As the article above pointed out, a non-dischargeable 13 is an option for debtors who simply want to reorganize their debts.

For someone with BOTH high unsecured debt and high priority debt, I really don't see too much of a downside to doing a chapter 20 (assuming you qualify). The beauty of it is, you discharge all your non-priority, unsecured debt (credit cards, etc) in the 7, possibly dispose of some secured assets and discharge the subsequent deficiency balances, then turn around and file a chapter 13 to deal with whatever remains (i.e. taxes, alimony, etc). The unanswered question is whether you can elect to be in a chapter 13 longer than 60 months (not that anyone would want too), but still, my gut instinct is no, that the max a chapter 13 can last is 60 months.

Keep in mind, the reason you file the non-dischargeable 13 is to get the benefit of the automatic stay. In that respect, if you can work something out with the IRS (or other priority creditors), you may not need to do the 13. The reason you do the follow-on 13 is to deal with "uncooperative" priority creditor and to get the automatic stay. It is possible that you could work something out with the taxing authority that is more beneficial than filing chapter 13. So, in that respect, you have to analyze, from a financial perspective, which option is better, i.e. filing the 13 and paying the claims IN FULL, or possibly working out a longer payment plan, settlement, etc, with the taxing authority.

[southernbelle]

Thank you HHM. That really helps. Fortunately, I have really cooperative local taxing authorites in my state and they have been extremely helpful with letting me pay $200 a month to each, but I owe the IRS about $70k which includes penalties and interest and the thought of the accumulation of penalties and interest on the unpaid amounts is scary. Some people say the IRS is easy to work with and others say it was a nightmare. I owe Trust Fund taxes and I don't really see them giving me much sympathy because although it was my ex's fault, I'm still held responsible.

I know the max. time frame they have to collect is 10 years, but that's a long time to deal with these guys. I thought about an OIC, but they require a $150 non-refund. application fee along with a non-refund. 20% deposit of the total debt. In my opinion, that's a lot of money to scrape up and send them, just to have them to keep it and reject my offer.

I know I owe the taxes, but the accrual of penalties and interest is overwhelming when I take into account everyone that needs to be paid. A non-dischargeable chapter 13 seems attractive (if possible) because I would have the option of handling the debt with 100% payback in a specific time period, not to mention the fact that a portion of it might not be considered priority which might cut me a break. It wouldn't be easy because I would have to make some major modifications and give up/sell my home to be able to afford a confirmed 13 plan, but it would save me lots of money in the long run. On the other hand, I would hate to give up my home and have to find another place to live, so I might try to deal with the IRS first to see what kind of payments they would expect. I guess I could always file the chapter 13 if I find that is a better option down the road.

Knowing I have the option to voluntarily dismiss the 13 is also refreshing because if the plan gets to a point where I can't handle the payments, at least the 13 reduced the overall amount and I might be in a better situation to deal with repayment.

We do things differently in Louisiana, but knowing a precedent has been set for this sort of thing will help if I decide to give it a try. Thanks again.