There are many reasons one should file a chapter 13 in lieu of a chapter 7. Today a young couple walked into my office exemplifying the poster-child reason to file Chapter 13. They are already in a chapter 13 case and have been making payments since 2004. Unfortunately the husband lost his job a few months ago and, despite struggling to keep up with the payments, they are no longer able to fund the plan. While discussing options with them, I learned they both experienced severe medical problems after the case was filed, the wife was hospitalized and the husband underwent surgery. To top it off, their house was hit by two separate windstorms in 2006 and they incurred substantial repair bills.
Needless to say, this triple-witching perfect storm of job loss, medical problems and natural disasters, caused them to run up substantial credit card and medical debt, in excess of $40,000. [As an aside, after filing bankruptcy, they received 21 credit cards, thereby dispelling the myth/lie creditors tell that people are unable to ever get credit after filing bankruptcy.]
Had they filed a chapter 7 instead of a chapter 13, they would be prevented from filing another Chapter 7 for 8 years from the previous filing date. In this case, the new debt would burden this already troubled family for five more years. As it stands, they are able to convert the existing case to a chapter 7 in an effort to discharge this new debt.
One never knows what problems are around the corner. A chapter 13 case still appears to be the best first option.
