Chapter 13 is used primarily for debtors who have: 1) fallen behind on their mortgages; 2) sought out an attorney at a time when their debts are still manangeable; 3) a significant debt which would not be discharged in a chapter 7,but would be discharged in a chapter 13; 4) filed/received a discharge in a Chapter 7 more than four years ago but less than 8 years ago;or, 5) an aversion to filing “bankruptcy”for various reasons.
The biggest incentive to file a Chapter 13 is that it allows debtors to retain their property while making payments over time under the terms of their Chapter 13 plan. This advantage is most often used when there is a problem with a mortgage arrearage and an imminent foreclosure. Often,lenders will not accept payments,or work out a payment plan,after a foreclosure is commenced. Filing a Chapter 13 can force the mortgage lender to accept payments on the arrearage over time,and the automatic stay stops the foreclosure. Stopping a foreclosure is a primary goal in most Chapter 13 filings.
Even absent a foreclosure,where there is sufficient disposable income,and there is equity in the debtor’s residence,Chapter 13 can be the best and most comprehensive solution for the debtor. In other situations,a client who really needs bankruptcy relief may simply refuse to file ‘bankruptcy’for a moral or religious reason. In cases where bankruptcy is needed but the client refuses to consider a Chapter 7,a “court supervised repayment plan”may be something this type of client can live with.