Chapter 7 versus Chapter 13
- Ch 7 debtor must pass the Means Test. The threshold for filing Chapter 7 is median income – debtors with less than median income presumptively qualify. Above median income debtors have to complete the Means Test.
- Chapter 13 - Individual debtors, including self-employed or operating unincorporated business, must have regular income and must have unsecured debts less than $383,175 and secured debts less than $1,149,525.
- Chapter 7 discharge can be obtained every 8 years. Chapter 13 discharge can be obtained every 2 years.
- Chapter 7 creditors can proceed against a co-debtor for collection of the debt.
- Chapter 13 "Co-debtor stay" prevents a creditor from pursuing a co-debtor on a consumer debt.
Treatment of Secured Debts - to keep property secured the debts (house, car, etc.):
- Chapter 7 debtors have to redeem the property by paying off its current value or re-affirm the debt.
- Chapter 13 debtors have to stay current with the Chapter 13 Plan.
Treatment of Unsecured Debts
- In Chapter 7 bankruptcy, most of unsecured debts (credit cards, medical bills, etc.) are wiped out.
- Chapter 13 debtors must commit all disposable income to the plan. Unsecured creditors are paid a portion of the debt (at least what they would have received in Chapter 7) and the rest of is discharged.
Treatment of Debtor’s Property
- Chapter 7 debtor must surrender non-exempt assets for liquidation and distribution to creditors. To keep non-exempt property, the debtor may buy it back from the trustee by paying the non-exempt amount.
- Chapter 13 debtor can keep non-exempt property by re-paying its value over 3 to 5 years.
- Ch 7 debtor cannot cure the past due arrearages over time, but may be able to negotiate terms of a re-affirmation agreement.
- Ch 13 debtor can stop the foreclosure and can cure the past due arrearages over a period of up to 60 months. Debtor may even be able to strip second mortgages or liens that exceed the value of the property rendering them unsecured debt.
- Cha 7 Debtor receives discharge 4 months after filing and Ch 13 Debtor receives discharge upon completion of the plan (3-5y).