Chapter 13 & Chapter 7 – What’s the Difference?

Chapter 13 and Chapter 7 are both chapters of the Bankruptcy Code, otherwise known as Title 11 of the U.S. Code.  They are the most commonly used chapters for people who are unable to pay all of their debts.  The most basic differences between them:

• In a Chapter 7, you agree to give up your non-exempt property in exchange for receiving a discharge of all of your dischargeable debts.   The process is usually completed in less than six months from the time of filing the case, through the meeting of creditors and culminating in the Order of Discharge and the closing of the case.

• In a Chapter 13, you enter into a payment plan for either three or five years, depending on the amount of your income.  Then, for the next three or five years, you make monthly payments to the Chapter 13 Trustee.  The Chapter 13 Trustee then distributes your payments (after subtracting a fee) to your creditors according to the priorities set out in the Bankruptcy Code.  At the end of the payment plan, if all of the payments have been made, any remaining debts will be discharged.

Since a Ch. 7 is completed so much quicker than a Ch. 13, the usual question I receive is:  Will I have to file a Ch. 13, or can I file a Ch. 7?   The answer:  It all depends.

The first thing we look at is your income for the previous six months.  If it is less than the median income for a household the same size as yours,, you will probably be eligible to file a Ch. 7, as long as you haven’t received a discharge in a previous Ch. 7 filed within the last eight years.

But even if your income (over the previous six months) is more than the median, you still may be able to file a 7 if you can pass the “Means Test.”  A couple of other considerations:  If more than half of your debt is non-consumer debt, then you don’t have to take the Means Test — you qualify for a Chapter 7.  Also. if your debt was incurred while you were on active duty in the military service and you are now disabled from that service, you need not take the Means Test.

If you would like to discuss your situation confidentially, please feel free to give me a call at 719 227-8787.  There will be no charge for a telephone consultation – or even the initial in-person consultation.  I should be able to tell you whether you qualify for a Ch. 7 or if a Ch. 13 is your only option.