Comparing Eligibility Requirements for Chapter 7 and Chapter 13

During our pre-bankruptcy review we will run the numbers both way.

Your Situation:

Chapter 7:

Chapter 13:

Debts not primarily consumer debts

Not subject to Means Test

Makes no difference whether debts are consumer debts.

Debts primarily consumer debts

Must compare income to state medians to determine whether Means Test applies.

Makes no difference whether debts are consumer debts.

Income at or below local median

Eligible regardless of how much owed or the amount of expenses.

Eligible for three-year plan with payments determined by actual expenses rather than IRS guidelines.

Income above local median

To see if you can pay a significant amount of debts, you are subject to Means Test.

Chapter 13 plan must be for five years with expenses determined by IRS collection standards.

Amount of Debt Owed

Amount of unsecured debt may determine eligibility for those subject to Means Test.

If your income is less than $100, [after expenses], no matter how much you owe, you pass the Means Test.  If your surplus income is $167 per month or more, regardless of how much you how, you DO NOT pass the Means Test.  However, if your surplus income is between $100 and $167, and if your debts are so high that your surplus income would not be enough to pay 25% over five years, you pass the test.

Maximum secured debt limit of $1,010,650.00 and unsecured debt limit of $336,900. 00.

There is no minimum debt requirement.

Previous Chapter 7 or Chapter 13 discharge

If Chapter 7 is filed less than eight years after filing or prior case unless the discharge was a Chapter 13 discharge and creditors in that case were paid at least 70%, then you are not eligible for discharging a Chapter 7.

Not eligible for Chapter 13 discharge in current case if debtor received a discharge in a prior case filed under Chapter 7, 11, or 12 within 4 years, or a prior Chapter 13 cased filed within two years of current case.

Effect of non-dischargeable taxes, child support, alimony, or liability for personal injuries arising from drunk driving or boating.

Does not affect eligibility to discharge other debts.  Owing these types of debts make it easier to pass the Means Test.

It may indirectly affect eligibility because plan must provide that these obligations be paid in full over a period of no longer than five years.