Can Filing a Chapter 7 Lead me into Chapter 13?

Filing Chapter 7 bankruptcy allows a debtor to eliminate most unsecured debts including credit card debt, personal loans, medical bills, and certain tax debts.  However, some unsecured debts are non-dischargeable.  Non-dischargeable unsecured debts include: 

• Student loans;
• Court ordered fines and restitution;
• Domestic support obligations;
• Sales taxes;
• Withholding taxes;
• Certain income taxes; and 
• Debts arising from a DUI or DWI. 

What Happens When Debts are Discharged?

When a debt is discharged in bankruptcy, the debtor is relieved of any further liability for the debt.  The discharge injunction prevents creditors from attempting to collect debts which have been discharged. 

On the other hand, non-dischargeable debts remain the responsibility of the debtor once a discharge order has been entered by the bankruptcy court.  After discharge, creditors may resume collection of non-dischargeable debts. 

What is a Chapter 20 Bankruptcy?

When a Chapter 7 debtor with non-dischargeable debts subsequently files a Chapter 13 case, it is often referred to as a Chapter 20.  Although a debtor who receives a Chapter 7 discharge may not receive a Chapter 13 discharge for four years, filing a Chapter 13 case immediately after receipt of a Chapter 7 case offers several advantages. 

• Automatic Stay – The automatic stay prevents creditors from resuming collection efforts on non-dischargeable debts.
• Repay Over Time – Filing a Chapter 13 case after receipt of a Chapter 13 discharge allows a debtor to restructure non-dischargeable debts and repay them over time.
• Stop Accrual of Late Fees and Other Penalties – Filing a Chapter 13 case after receipt of a Chapter 13 discharge will stop the accrual of late fees and penalties.
• Discharge Certain Debts that Were Non-dischargeable in Chapter 7 – Filing a Chapter 13 bankruptcy after receipt of a Chapter 7 discharge allows for discharge of some debts that are not dischargeable in the Chapter 7 case such as:

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  • Court fees;
  • Condo association and similar fees;
  • Certain martial debts resulting from divorce or separation;
  • Debts for loans used to pay non-dischargeable taxes;
  • Debts arising from loans taken out against retirement plans; and
  • Certain debts that were not discharged in a previous bankruptcy.

What Are the Disadvantages of a Chapter 20 Bankruptcy?

The first disadvantage of a Chapter 20 is that the debtor will be required to pay the Chapter 7 and the Chapter 13 filing fees ($299 for the Chapter 7 and $284 for the Chapter 13).  Another disadvantage is that the debtor will have to pay two attorney’s fees.  Fortunately, the Chapter 13 attorney’s fees can be paid through the Chapter 13 plan.  Finally, filing a Chapter 20 means the debtor will have to wait much longer to obtain the fresh start he is seeking. 

Getting Legal Help

There are a number of factors which should be considered before making the decision to file a Chapter 13 case after receipt of a Chapter 7 discharge.  Therefore, it’s best to consult with a qualified bankruptcy attorney who can help you decide whether doing so is the best option for you.