Why Choose Chapter 13?

DRAWBACKS OF CHAPTER 7

Chapter 7 provides a fairly wide range of debt relief for a prospective debtor, but it does not do all things for all people. There are some debt problems that Chapter 7 just does not help. These are typically situations where the debtor’s assets (a house or a car, for example) have loans against them that are behind in payments.

A Chapter 7 case will temporarily stay a foreclosure on your home, but the filing of the case and the imposition of the automatic stay does not allow the debtor to force a creditor into accepting a payment schedule for the cure of the defaulted payment amounts.

When the Chapter 7 is discharged the automatic stay normally ends. It could end sooner where the creditor files a motion to lift the stay. This frees a secured creditor to proceed with lien enforcement and let’s them pick up where they left off when the bankruptcy was filed. In other words, they are free to finish the foreclosure. Also, in some California foreclosure cases, the automatic stay will not stop the running of the statutory time that the borrower has under state law to cure a default.

In a case of an automobile loan that is delinquent, the vehicle will eventually be repossessed. Thus, Chapter 7 is an imperfect remedy for individuals who have defaulted on secured obligations and who want to keep the collateral (the asset affected by the lien).

TYPICAL CHAPTER 13 CASES

Historically, the typical Chapter 13 case has been filed by someone trying to stop the foreclosure sale of their home. The balance of Chapter 13 cases are probably filed by individuals who are trying to reorganize tax debts, deal with a default situation on motor vehicles, or retain nonexempt assets that would be liquidated if the case was administered under Chapter 7.

Of course, now that the new bankruptcy law applies, there are some Chapter 13 filings by individuals who have been excluded from a Chapter 7 because of the MEANS TEST.

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