so called "chapter 20"

[howtoplan]

[lrprn]

One bankruptcy strategy used involves the filing of a Chapter 7 bankruptcy, which discharges most, if not all, of the filer's debt obligations. Then a Chapter 13 bankruptcy is filed to repay the secured creditors, tax obligations, and any nondischargeable debts. Thus, a Chapter 7 followed by a Chapter 13 is the so-called artificial attorney-created "Chapter 20" bankruptcy. Attempting a Chapter 20 can be quite complex and is very risky if not done correctly.

The use of "Chapter 20" was deliberately restricted by the provisions of the 2005 bk law amendments which allow a discharge in a 13 following a 7 only when specified time has passed after the Ch 7 is discharged.

[spidge]

I know the "good faith" is the issue but if your ch 7 was a no asset case and your under water on the first mortgage alone would that be strong enough evidence to avoid any questions of BK abuse while attempting a lien strip in a ch 13?

[HHM]

A few questions.

Is your home worth less than is owed on the 1st mortgage. If yes, then you can do a lien strip of the 2nd in a chapter 13 (note, there is some risk here, it is not settled whether you need a "discharge" from the chapter 13 in order for it to stick). As for the corporate guarantee, you can buy yourself some time, but you need to review the limits of the "co debtor" stay. In chapter 13, co-debtors (husband-wife, or person-corporation) get the benefit of the automatic stay.

With chapter 20's, you really need to get a handle on what benefit you will get from it. Simply doing it as a matter of good faith is not a good idea. If business is bad, it's bad, and may not be worth salvaging (at least no salvaging in its present form).

[howtoplan]

my case is complicated because we are filing do to a failing s-corp whose family is in litigation over it. Our debts primarily business and exceed chapter 13 limits. However we have c-corp that provides for our living but the bank who holds the note for the s-corp (s-corp loan went bad )is calling one of our other rental properties in default too - even though it has never been late. The kicker is that we personally signed on the note and the c corp.

[howtoplan]

what does this mean?

note, there is some risk here, it is not settled whether you need a "discharge" from the chapter 13 in order for it to stick)

[HHM]

note, there is some risk here, it is not settled whether you need a "discharge" from the chapter 13 in order for it to stick)

Here is the problem.

When you file chapter 7 and receive a discharge, you cannot receive a discharge in another chapter 7 for 8 years, or a chapter 13 in 4 years. Thus, in chapter 20's, the chapter 13 doesn't get discharged (it will close, but you don't get a discharege), which is usually not a problem because you have already discharged all your debt in the prior chapter 7. What is unsettled about lien strips is whether the chapter 13 needs to be discharged in order to solidify the strip. In the straight-up chapter 13, the answer is yes (i.e. when there was no previous chapter 7), but in a chapter 20 context, the jury is still out on whether you need the discharged. The chapter 7 already discharged your underlying liability, so presumably, there should be no problem simply stripping the lien in a subsequent, non-dischargeable chapter 13.

[howtoplan]

Thank you for explaining this further.

[CH33 Paralegal]

You don't get any REAL BK relief for four years after the filing date of a discharged 7.

If you reaffirmed the debt in your 7, it's also going to be hard to argue that now all of a sudden, your 2nd mortgage is completely unsecure. The 7 gave you a chance to walk away from the asset that was apparently massively underwater, but by REAFFIRMING it, you legally put yourself back on the hook to pay the mortgage. Hopefully your attorney advised you NOT to reaff the 2DSD.