What does 'Chapter 20 Bankruptcy' mean in personal finance?

I recently came across the term “Chapter 20 bankruptcy” while researching personal finance topics, and I’m not quite sure what it entails. Can someone please explain what Chapter 20 bankruptcy is in the context of personal finance? Is it a common strategy, and how does it affect individuals trying to manage their financial situations?

Any insights or experiences you can share would be greatly appreciated.


Hi @reeddakota30290

In bankruptcy law, “Chapter 20” is not an officially recognized chapter. Instead, it’s a colloquial term to describe a specific strategy employed by individuals or businesses facing financial difficulties.

Chapter 7 Bankruptcy: This is a liquidation bankruptcy where most of your assets are sold to repay creditors. It provides a fresh financial start by wiping out most unsecured debts, such as credit card debt and medical bills.

Chapter 13 Bankruptcy: This is a reorganization bankruptcy where you create a repayment plan to pay off some or all of your debts over three to five years, often keeping your assets.

Now, here’s where “Chapter 20” comes into play:

Chapter 7 followed by Chapter 13: Some individuals facing significant debt challenges initially file for Chapter 7 bankruptcy to eliminate unsecured debts. Afterwards, they may file for Chapter 13 bankruptcy to address any remaining secured debts or debts that couldn’t be discharged in the Chapter 7 process.

This sequential filing strategy can help individuals protect their assets and manage their debts effectively. For instance, if someone’s home is at risk in Chapter 7 due to a mortgage default, they might use Chapter 13 to catch up on mortgage payments while keeping the property.

However, it’s crucial to note that strict rules govern the timing and eligibility for filing multiple bankruptcy chapters. Consulting with a bankruptcy attorney is highly advisable to determine if this strategy suits your financial situation.

In summary, “Chapter 20 bankruptcy” is an informal term referring to the sequential use of Chapter 7 followed by Chapter 13 bankruptcy filings. It’s a strategy to manage different debts and protect assets while working towards a more stable financial future.

Please remember that bankruptcy laws can be complex and vary by jurisdiction, so seeking professional legal advice is essential before filing for bankruptcy.

I hope this explanation clarifies the “Chapter 20 bankruptcy” concept for you. If you have any further questions or need more information, feel free to ask.