What Is The Difference Between Chapter 7 And Chapter 13?
In a Chapter 13, a person will repay their debts, in full or in part, over a 3-5 year period. In a Chapter 7, a person’s debts are discharged in a proceeding that usually only lasts 4-5 months. will cost twice as much in fees, which is another reason why a Chapter 7 will look good.
About 15-20 years ago, Congress had a sense that people with the ability to repay something were filing Chapter 7, rather than Chapter 13. Obviously, if a person could make all their debt go away in a 4 month proceeding, why would they want to repay over a 3-5 year period of time in a Chapter 13? When Congress finally understood this, they looked for ways to “encourage” people to file Chapter 13 and make payments over time. They came up with a “means test”, which looks at the person’s income and expenses. Someone who doesn’t pass the means test won’t be allowed to file a Chapter 7; they will make them convert to a Chapter 13 plan or dismiss the case.
Chapter 13 is great to repay delinquent mortgage payments back over time, pay delinquent taxes back over time or for people with higher incomes. However, without one of these issues, and all other things being equal, a person is usually better to file a Chapter 7 and start fresh sooner.
