Chapter 7 vs. Chapter 13 Bankruptcy
Which is Right for You?
Millions of Americans have utilized these debt relief options over the years in the wake of an unexpected financial crisis or insurmountable debt in order to regain their independence and a sense of stability for themselves and their loved ones. If you think that bankruptcy might be right for you, read on to learn more about the most common chapters and which type may best for you.
Who Can File?
You can file for bankruptcy if you cannot repay your debts. If your monthly income is lower than the median income for households similar to yours in your vicinity - or if you have low disposable income - you may qualify for Chapter 7 bankruptcy. You will need to pass the "means test" to determine whether you are eligible to file this chapter. To qualify for a Chapter 13 bankruptcy, you will need to have sufficient income to ensure that you will be able to repay your debts over time. In addition, you will need to be up-to-date on filing all of your income tax returns.
You will not be eligible for Chapter 13 bankruptcy if:
- Your income is insufficient or erratic;
- Your secured debts are more than $1,149,525 in total; and / or
- The amount of your unsecured debts exceeds $383,175.
Chapter 7 Bankruptcy: Benefits & Outcomes
Chapter 7 or "liquidation" bankruptcy results with a discharge of most, if not all, of your debts. Almost all of your unsecured debt can be discharged in a Chapter 7 bankruptcy, though some unsecured debts may not be wiped out. This process also puts an immediate stay on your creditors - meaning that they will not be able to freeze your bank accounts, shut off your utilities, garnish your wages, or pursue any other forms of debt collection.
If you are eligible for Chapter 7, you will likely retain all of your assets. In certain, limited circumstances, you may have to surrender some of your property to the bankruptcy trustee in order to repay your creditors. Some forms of property are "exempt" from seizure by creditors. Most states have exemption laws in addition to the exemption laws provided by the bankruptcy code. In Texas, you can choose to use either the state or the federal exemption list. An experienced bankruptcy attorney from our firm can help you decide which exemption list is better for you to use, and may be able to help you protect your property entirely.
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We can help you understand the processes for filing for bankruptcy and making an estate plan.