As a Los Angeles Bankruptcy Specialist, the majority of bankruptcy cases I see are Chapter 7’s. Why do some folks file Chapter 13 even though Chapter 7 provides a wide range of debt relief?
Simply put, Chapter 7 does not do all things for all people and there are some problems that a liquidation bankruptcy is not designed to fix. These are typically going to be situations where you have fallen behind on your house or car payments. People rightly turn to Chapter 13 relief to try to save those assets.
Los Angeles Bankruptcy Specialist Explains the Bankruptcy Stay
The filing of a bankruptcy case creates an Automatic Stay. The Automatic Stay stops almost every kind of debt collection, even foreclosure, lawsuits, and the IRS. It’s true that a Chapter 7 case will temporarily stay or prevent 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. And that’s often what folks hope to accomplish in Chapter 13.
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 lets them pick up where they left off when the bankruptcy was filed. In other words, the creditor is 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. (To learn more about your car loan and some of your options in bankruptcy, see our Human Guide To Bankruptcy – Reaffirmation Problems and Alternatives.) Thus, Chapter 7 is an imperfect remedy for individuals who have defaulted on secured obligations and who want to keep the collateral (like the car or the home that is affected by the lien).
So who files Chapter 13? 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 default situations on motor vehicles, or keep and retain assets that are not “protected” (exempt) in bankruptcy and would be liquidated (lost to a sale) if the case was handled 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. To learn more about your financial options and the relief that may be available to you, call us at Bayer, Wishman & Leotta for a free consultation.
Bayer, Wishman & Leotta is a full service bankruptcy firm. Every lawyer at our firm is a Los Angeles Bankruptcy Specialist. We have offices in Downtown Los Angeles, the San Fernando Valley and Long Beach, California. Our attorneys are Certified Specialists in consumer and small business bankruptcy and you may reach us at (800) 477-3111. Check us out on AllExperts.com. Also, for lots of valuable bankruptcy information, look for us at TheBankruptcyGuide.net, our Human Guide to Bankruptcy.