If your income is below “the median income” you may be able to file Chapter 7, but you may still decide to file Chapter 13 because 1) you own or are paying for property that you need to keep with a value above the applicable state exemption, or 2) because the majority of your debt cannot be discharged, for example recent tax debt or tax liens.
Benefits of Chapter 13
In Chapter 13 you may modify existing loans. The payment is lowered by extending the payments over 60 months and the interest rate is reduced. Read the Supreme Court case establishing the means for determining the interest rate by clicking here.
In Chapter 13 you may be able to strip down liens on property. This means that the amount secured by the lien is valued at the value of the property. The remainder becomes a general unsecured debt and is dischargeable. (This is not available for vehicles purchased within three years preceeding the bankruptcy filing.) Read a case on stripping down car values by clicking here.
The co-debtor stay is only available in Chapter 13. An automatic stay issues to protect co-debtors while the debor is in Chapter 13. The stay continues until the case is closed or dismissed.