First of all, there is no Chapter 20 in the Bankruptcy Code. The term “Chapter 20” is a shorthand term where the individual or married couple has filed a Chapter 7 and shortly thereafter filed a Chapter 13.
When the homeowner is faced with a foreclosure and has no present ability to file a Chapter 13 to save the property a Chapter 7 may be appropriate. In addition to mortgage defaults, there is likely a good deal of other debts. The discharge in a Chapter 7 relieves the person from his/her/their debt obligations.
But circumstances change. For instance, a married couple may have separated and both incomes were required to successfully file a Chapter 13. Being separated a Chapter 7 was the logical avenue so they could get a “fresh start.”
After the Chapter 7 discharge, the couple reconciles and now has sufficient income to pay the current mortgage; make payments to the Chapter 13 trustee, and have a sufficient amount for their everyday living expenses.
Courts, trustees, and mortgagee may look at such a “Chapter 20” with suspicion. But if circumstances have changed for the good the Chapter 13 should be confirmed and the debtor will be given a chance to save the home.
There are, of course, other changes in circumstances following a Chapter 7 discharge. An unemployed or underemployed Chapter 7 debtor may get a good-paying job. The list of positive changes of circumstances following a Chapter 7 could on and on.
Good things sometimes happen to good people.
The point is that something good happened after the Chapter 7 discharge. And the subsequent Chapter 13 case is being filed in “good faith.”
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