Chapter 7 is a liquidation process where most unsecured debts are discharged by selling non-exempt assets to pay creditors, while Chapter 13 allows individuals with regular income to create a repayment plan to restructure and partially pay off their debts while keeping their assets, often used to save a house from foreclosure; the key distinction is whether the client has enough non-exempt assets to qualify for Chapter 7 or if they need the flexibility of a repayment plan under Chapter 13 to protect valuable property. 

 

Key points about Chapter 7:

 

Liquidation:

The primary feature of Chapter 7 is the liquidation of non-exempt assets to distribute proceeds to creditors. 

 

Means Test:

To qualify for Chapter 7, individuals must pass a "means test" based on their income and expenses to determine if they have a low enough income to justify liquidation. 

 

Faster Process:

Typically, Chapter 7 is a quicker process than Chapter 13 as it does not require a repayment plan. 

 

Limited Asset Protection:

Individuals may only keep certain "exempt" assets depending on state laws, such as a primary residence up to a certain value and a vehicle. 

 

Key points about Chapter 13:

 

Repayment Plan:

In Chapter 13, debtors must file a detailed repayment plan with the court, outlining how they will distribute their future income to creditors over a set period (usually 3-5 years). 

 

Asset Protection:

Chapter 13 can be beneficial for individuals who want to keep valuable assets like a house that they might otherwise lose in Chapter 7, allowing them to catch up on missed payments through the plan. 

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Flexibility:

Chapter 13 can be used to restructure various types of debt, including secured debts like mortgages and car loans. 

 

Higher Income Eligibility:

Individuals who may not qualify for Chapter 7 due to a higher income may be eligible for Chapter 13.