You can rearrange payments under Chapter 13 to be paid over the course of as many as 60 months. In many cases if you can afford to catch up on your house payments, but can’t pay credit cards, your credit card debt is then discharged just as in a Chapter 7. “Chapter 13 takes elements of Chapter 7 and incorporates them to help someone come up with a tailor made reorganization based upon paying their best good faith effort,” says Bayer. Many people want to file under Chapter 13 because they feel obligated to help pay off their debt. But it’s not always the best solution, and often Chapter 7 is a better remedy.
“Most Chapter 7 debtors today are primarily concerned with credit card debts,” says Bayer. “It is not uncommon to see Chapter 7 cases for individuals that have credit card debts exceeding their annual income, sometimes double or even triple what their annual income may happen to be. For such an individual, Chapter 7 holds out the promise of gaining relief from those debts.”
But because Chapter 7 forgives most debts, it’s significantly more difficult to qualify. “There’s an income rule based on your state and if you’re capable of repaying a portion of your debt you’re forced to file Chapter 13,” says Eisenberg. Part of what makes filing Chapter 7 so difficult is that you need to meet a federal “means test.” The test requires you to provide “detailed financial information including a list of all debts, a list of all assets, a list of current living expenses, a schedule of current and projected income, as well as the answers to many questions that delve into a person’s financial affairs over the last several years,” says Bayer. This is one test where bluffing gets you nowhere. The IRS pays close attention to all answers.
