Why are chapter 13 cases being filed less frequently?

22 Apr Why are chapter 13 cases being filed less frequently?

Professor Lawless reports in Credit Slips that chapter 13 cases are now being filed at the lowest rate since the Bankruptcy Code was amended.  Why is this happening?

  • You need disposable income for a chapter 13 plan – yet more people are out of work
  • You would want equity in property in order to file a chapter 13 case – but most people are unwilling to spend 5 years to bring a mortgage current if their house is worth much less than their mortgage
  • If people have the right to discharge their debts in chapter 7, the would rather not pay for 5 years under a plan if they can avoid it.
  • There is no incentive to file a chapter 13 case since the mortgage modification legislation in Congress has not yet passed.  People may be waiting to file their chapter 13 cases until they find out if they can save their homes in chapter 13.

We hope that the Senate will pass S. 61 so that mortgage modifications will be allowed in chapter 13 cases.  If so, it would be interesting to see if the rate of chapter 13 filings increases.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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