Chapter 20 Bankruptcy – File a chapter 7 to discharge unsecured debt then file a chapter 13 to stip-down or strip off a secured or partially secured debt.
This procedure is sometimes described as a chapter 20 but there is no such chapter. 7+13 = 20 hence the name.
A chapter 7 discharges personal liability. No payment plan is required. A chapter 13 requires a payment plan but allows secured debts that are not supported by equity to be stripped off entirely or bifurcated into secured and unsecured portions. This bifurcation is often called a strip-down. The secured debt is reduced to the value of the collateral utilized to support the secured loan.
A strip-down is not permitted if the loan is secured only by the debtor’s personal residence. This is called the homestead exception.
The homestead exception will not prevent a stip-off if there is no equity to support a loan secured only by the Debtor’s principal residence however if there is just one Dollar of equity the homestead exception will prevent a lien secured by the debtor’s principal residence. This applies to second mortgages as well as first mortgages.
Chapter 20 Bankruptcy
Chapter 20 but there is no such thing but, chapter. 7+13 = 20 hence the name.
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