Differences Between Chapter 13 and Chapter 7?

If your household brings in over the median income for your household size and you can’t show that your expenses use up all your income according to the bankruptcy code’s means test, then you may have to file a Chapter 13 plan that lasts five years. In some cases you may want to file a Chapter 13 whether the means test requires you to or not. If the means test doesn’t require it, your plan can be as short as three years. If you filed a Chapter 7 in the last 8 years and received a discharge, you have to file a Chapter 13.

One reason why you might want to file a Chapter 13 is because a Chapter 7 trustee might take property you own or even recover property you transferred to someone recently. For example, if you gave away property or paid a loan back to relatives recently, sometimes a Chapter 7 trustee can sue that person and get the money or property back to pay your creditors. A Chapter 7 trustee can take some property from you if it is not protected by your exemptions. If you pay your creditors as much as a Chapter 7 trustee would get for them through a repayment plan, you can keep the property or avoid recent transfers or payments from being undone by the trustee.

Another reason you might want to file a Chapter 13 is to get caught up on a mortgage and stop a foreclosure. In a foreclosure, your home is sold if you can’t get caught up on your payments all at once. A Chapter 13 plan lets you get caught up over time. A Chapter 13 allows you to remove a second mortgage all together if the value of your home is less than the first mortgage.

You can also spread out car payments in a Chapter 13 plan to make them more affordable. If you are behind on a car loan, you can stop a repossession by filing a Chapter 13. For cars that were purchased over 910 days ago, you can “cram down” the car loan. That means you can pay the value of the car at 100% plus a reduced rate of interest, and pay the same percentage you would to your unsecured creditors – as little as 0% depending on what you can afford.

Even if you pay 100% of your debts because of your income or assets, a Chapter 13 provides light at the end of the tunnel. It’s much better than being garnished by creditors and because it is overseen by the federal courts, when your plan is complete you know you are out of debt because you get a discharge that is good all over the United States.