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.
Allowable Expenses: Calculating "Disposable Monthly Income"
What, if anything, is paid to general unsecured creditors (creditors without liens)?
If your income dictates that you must file a Chapter 13, the Bankruptcy Code requires the trustee to allocate “disposable income” to unsecured creditors. Form B22C of your required schedules and statements is used to determine “disposable income”. This Form looks at your income, household size, some actual expenses, and some national standardized expenses. Using these factors the trustee determines what you should have left over each month and what you would have over sixty months. The amount of disposable income over sixty months is the “base” of your plan, the amount that must be paid by the Chapter 13 plan.