Chapter 7 vs Chapter 13: Helping Clients Choose

"Which chapter should I file, Chapter 7 or Chapter 13?" It's the question every bankruptcy attorney hears on the first client call, and the answer is always the same: "It depends."

But it doesn't actually depend on that much. The decision tree is more structured than most attorneys realize. And once you build a framework, advising clients becomes less art and more applied science.

Start with the means test. Chapter 7 is available only if the debtor either is below median income for their state or passes the disposable income test. If they fail the means test (above median income, too much disposable income), Chapter 7 is off the table. Chapter 13 is the only option. This is not subjective. This is binary. Either they pass the test or they don't.

If they pass the means test and Chapter 7 is available, the analysis becomes about goals. Does the debtor have assets they want to protect? Equity in a house? A car? Retirement accounts? Chapter 7 wipes out unsecured debt but risks assets. Chapter 13 keeps assets and creates a repayment plan. Many debtors with modest equity choose Chapter 13 not because they have to, but because they want to save their home.

Then consider income stability and disposable income. Chapter 7 is done in four to six months. Chapter 13 is a three to five year commitment. If your client has stable income and can afford a plan payment, Chapter 13 is viable. If their income is irregular or they can't sustain payments, Chapter 7 is safer. A Chapter 13 plan that fails to completion is worse than no plan at all.

Finally, consider secondary factors: codebtors, tax debt, student loans, criminal fines. Chapter 13 stops creditors from pursuing codebtors. Some tax debt is dischargeable in Chapter 13 even if it fails the Chapter 7 discharge test. Student loans are rarely discharged, but Chapter 13 gives you breathing room and potentially lower payments.

The truth is, once you've run the means test and understood the client's assets and income, the chapter choice becomes clear. It's not magic. It's analysis.