Why in some situations is it necessary to file a Chapter 13 Bankruptcy instead of a Chapter 7 Bankruptcy?

A chapter 13 bankruptcy is reorganization and allows the debtor to pay back his or her creditors over an extended period of time at a lesser amount. The debtor also has the opportunity to surrender property, reinstate mortgages and car loans. A debtor may also have the opportunity to reduce vehicle loans.

Following are some situations where it is necessary to file a Chapter 13 Bankruptcy instead of a Chapter 7 bankruptcy:

• The debtor’s income is above the state median for a Chapter 7 Bankruptcy filing.
• A debtor has a pending foreclosure and wants to keep his or her house.
• A debtor has a vehicle that is about to be repossessed and he or she wants to retain the vehicle.
• The debtor has a previously filed a Chapter 7 Bankruptcy within the statutory time and is therefore not able to file another Chapter 7 Bankruptcy.

After a debtor files a Chapter 13 Bankruptcy, he or she is put on payment plan for a minimum of 36 months to a maximum of 60 months. During the 36-60 months, the creditors cannot attempt to collect on their debt. After the completion of the plan, the remaining unsecured is discharged by the Court. If a Chapter 13 Bankruptcy is dismissed for failure to make plan payments, the debtor is once again subjected to the collection practices of the creditors.