Chapter 7 May Not be a Right, But That Does Not Necessarily Make it a Privilege

Lately this office has received several calls or visits from potential clients who have a colleague, family member, or friend who led them to believe that Chapter 13 is a sort of no-win provision for people that "make too much money" to file a Chapter 7 bankruptcy.  This familiar discussion is frustrating, because the implications of the false hope of being "fortunate enough" to file for Chapter 7 bankruptcy protection distort the nature of Chapter 13 bankruptcy proceedings (if not the nature of life itself in America, where we do pursue to have things).  This nonsense-wisdom we hear repeated so often makes bankruptcy relief seem unappealing to people when it is actually a powerful remedy that can help get them back on their feet.

For starters, keep in mind that the ideal candidate for Chapter 7 is usually someone with no assets to lose in bankruptcy.  Most of us has been there before (where everything we had, if anything, would have been exempt in a bankruptcy proceeding), and a lot of hardworking Americans really are in this position now - but it is not something we should hope for.  We have to keep it simple and remember that having nothing to lose isn't really such a good thing - even when you owe money to lots of people.  And you can keep your non-exempt things, even if you file for bankruptcy, by redeeming them or proposing a bankruptcy plan.

In the real world, even assets with no value to the client are something to lose that you might want to keep.  Example: an asset with loans against it that are more valuable than the asset; like a house with an upside-down mortgage.  The Chapter 13 process would allow the debtor with an upside down house - maybe one with an artificially low interest rate that is cheaper than a comparable rental property - a chance to reorganize their finances and keep the house longer than they would be able to keep it in a Chapter 7 "straight" bankruptcy.  This can yield true savings and might avert a family crisis: losing the house on someone else's schedule.  In fact, the Chapter 13 client might be able to keep it free of the second mortgage, and so it might not be so upside down anymore after she completes her bankruptcy plan.

Conventional wisdom is not always too wise, but hopefully we can all show some restraint and not waste our free time feeling jealous that we have nothing to lose like Aunt Anne in Stockton.  If Aunt Anne did have something to lose and filed Chapter 7 bankruptcy, she should ask her bankruptcy attorney how many Chapter 13 cases he had confirmed last year.  Odd as it may seem, there are some "bankruptcy attorneys" who "don't do Chapter 13."  Your bankruptcy attorney should file and be comfortable with both types of consumer bankruptcies, or you should look elsewhere.  This office files a mix of bankruptcies, and would decide whether a Chapter 13 or Chapter 7 is the best approach only after an extensive discussion with the client and the client's goals.

A lawyer with no interest in learning how to do a Chapter 13 bankruptcy is, perhaps, a perfect match for the client who wants to have nothing to lose.  You should discuss your case with an attorney who aspires to know everything they can about consumer bankruptcy.