Why 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. A Chapter 7 case will temporarily stay a foreclosure but the filing of the case and the imposition of that stay does not give the debtor any mechanism to force a creditor into accepting a payment schedule for the cure of the default. When the Chapter 7 is discharged the automatic stay normally ends. 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 and finish the foreclosure. (In some California foreclosure cases, the 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 are desirous of keeping the collateral.
Typical Chapter 13 cases . In the past, the typical Chapter 13 case was usually filed by someone who is 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 laws have gone into effect, there will also be some Chapter 13 filings by individuals who have been excluded from a Chapter 7 because of the means test.