When Chapter 13 bankruptcy was first approved, a lot of people felt it was a great alternative to Chapter 7 liquidation. There were many reasons why Chapter 13 made sense, particularly when it came to debtors being able to hold on to their secured assets because, with a Chapter 7 bankruptcy on their record getting back into the housing market, for example, would be difficult (let alone finding a new vehicle to replace one that might have been security for another debt).

Not only that, But chapter 13 bankruptcy meant that secured creditors would not be repossessing assets during the most difficult of economic times (like recessions) and flooding the market. If they did, then retailers (car dealerships come to mind) would experience greater hardships as the inventory of repossessed assets would make the inventory cycle even longer. And as for home prices… well, it has been evident what an oversupply of home inventory can do not just for asset prices but for the economy as a whole.

But for borrowers, there are benefits as well. Not only do borrowers get to keep their homes and other assets, but they resume life as normally as humanly possible. This means they do not have to displace their entire family from a home they have grown attached to do and relocate in a rental apartment. Understandably, families with children will find it difficult not only in terms of space and physical adjustment, but in some of the other changes like school changes and other routine activities that are community specific.

As well, since the bankruptcy process is a public one (bankruptcy details are made available under public records), sticking to chapter 13 bankruptcy allows the family to keep as much of their financial details private as they possibly can. Without seeing repossession equipment at the home and a trustee changing the locks, most nosy neighbors will not know whether there are financial problems at all.

So while Chapter 13 does cause problems for unsecured creditors who may have contributed to the individual debt problems in the first place, it certainly has a positive and less damaging impact on the overall economy.

Chris has more than 16 years of financial services experience, having helped thousands of people with their finances. He manages a debt-related blog about How To Repay Debt at HowToRepayDebt.com. As well, he manages as website about Class-B CDL Jobs at class-b-cdl-jobs.com.