The most powerful tool for debtors fixing things is the bankruptcy judge.
My friend bankruptcy lawyer Doug Jacobs explains the difference between the bankruptcy chapters available to individuals this way:
Chapter 7’s fix things; Chapter 13’s allow debtors to fix things.
Kinda like the difference between grabbing a quick shower and spending a week at the spa. The week at the spa makes bigger changes if you work at it.
Rules that matter
But the unnamed difference between Chapter 7 and Chapter 13 in my view is the continuing availability of a bankruptcy judge to enforce the law and resolve disputes.
It’s like the difference between playing street ball and league baseball. On the playground, there’s no one to resolve disputes; in organized ball, there’s an ump to enforce the rules and make close calls.
For the price of the filing fee, a Chapter 13 debtor can invoke the bankruptcy rules and if he has a dispute with a creditor, haul the creditor before the judge for redress.
Chapter 7 has such a short duration, typically four to five months, that there is little time or motivation for the court to get involved in the debtor’s problems with creditors whose claims will survive the bankruptcy. Not so in 13, which lasts three to five years.
Most of my Chapter 13 cases are driven by a desire to keep a home that is either underwater or subject to serious payment defaults.
The sad truth is that mortgage servicers are disorganized, utterly indifferent to the borrower, and often downright venial. And outside of bankruptcy, it’s difficult and expensive to call them to account.
Chapter 13, however, works like a charm. The mortgage servicer has to file a proof of claim, under penalty of perjury. They have to swear to the truth of the facts behind relief from stay motions. They must give notice of charges to a secured loan or changes in monthly payments in advance.
And with the advent of Bankruptcy Rule 3002.1, they have to render an accounting at the end of a Chapter 13 case.
Put another way, they have to play by the rules.
And standing behind the debtor, to enforce the rules, is a federal bankruptcy judge.
That’s why I like Chapter 13.
Image courtesy of Wikimedia and Pastorbhuro