Chapter 7 + Chapter 13 Lien Strip = Chapter 20
Alex filed a Chapter 7 bankruptcy ten months ago with a different attorney. He received a discharge and no longer has any personal liability on his mortgage. Since Alex already discharged his credit card debts and other debts in his Chapter 7 filing, it may seem that he cannot benefit from another bankruptcy filing. After all, he is not eligible for a discharge for another 4 years due to his recent Chapter 7 filing. However, Alex owns a home in Montgomery, Illinois. He is committed to keeping his home, even though his second mortgage puts him underwater by $100,000. He is currently four months behind on his mortgage, but his lender has not yet filed a foreclosure action. Alex is a good candidate for what is sometimes called a Chapter 20 bankruptcy.
Even though he cannot receive a discharge from a Chapter 13 filing, Alex can use the Chapter 13 filing for two main purposes: he can get his mortgage current and strip his second mortgage. Since he is only four months behind on his mortgage, and given that he will be attempting a 10% payback plan, Alex’s plan may be very short, depending on his disposable monthly income. At the end of the plan, he will be current on his mortgage and no longer underwater because his second lien will be stripped in the Chapter 13 bankruptcy.
