What Chapter 13 Can Do that Chapter 7 Can’t
Chapter 13 reorganizes any arrearages on your mortgage, car loan, income taxes, child support, and alimony over the course of your plan, while you would have to settle those past-due balances separately in a Chapter 7. You would also have to satisfy some of those debts before your Chapter 7 is completed to avoid foreclosure, repossession, etc.
If you have co-signers on financed properties such as your vehicle, surrendering that vehicle in Chapter 7 or losing it to repossession can negatively impact your cosigner. Chapter 13 protects your cosigners from negative credit reporting and collection attempts by your creditors.
Chapter 13 provides the unique opportunity of lien-stripping. If you owe more on your home than what it is worth, you can discharge secondary mortgages in your bankruptcy. You will not have this option in a Chapter 7.
Chapter 13 Eligibility
Chapter 13 has much looser eligibility requirements than Chapter 7 bankruptcy. Unlike a Chapter 7, Chapter 13 doesn’t require you to make less than your state’s median income or pass a Means Test to be able to file. In fact, you will have to prove that you have enough income to pay the minimum amount on your debts in your proposed payment plan. There are also limits on how much debt you can have when filing a Chapter 13 Bankruptcy. Your unsecured debts (e.g., credit cards and medical bills) must be less than $394,725. Your secured debts, like a mortgaged home and financed vehicle, must be less than $1,184,200.