The majority of bankruptcies are filed under Chapter 7 rather than Chapter 13; the statistics show about 75% of filers file with Chapter 7, the rest with Chapter 13 for personal bankruptcy. What do these names all mean, you may be wondering. Why file at all? And if everyone is filing with one form, why not the other?
What These Are
For the newcomer to filing personal bankruptcy, there are two kinds. Chapter 7 is a liquidation of assets so that debts can be discharged. Chapter 13 is a debt repayment plan where you keep your assets and pay back debts over an extended period.
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So you're thinking one sounds better than the other. How can you choose between them? For Texas residents, sometimes it won't matter. If you make too much money, you may be ineligible for Chapter 7. This depends on how much you make in comparison to others in Texas. If you're above the average, you may not be eligible.
The Benefits of Chapter 7
This form of personal bankruptcy discharges debts, with most cases being you lose absolutely nothing. That's what makes it so popular. If you have incredibly high interest rates on maxed out credit cards, and/or tens of thousands in medical debt, you can eliminate these debts in a matter of months. You will be free and clear, and creditors will stop calling you.
There are some negatives. You can technically discharge mortgage debt, but you'll lose the home. The filing will also be on your credit report for 10 years. And for Texas filers, sometimes you make too much in the first place.
Chapter 13 Benefits
Chapter 13 is less popular, but it can be far more effective if you're having trouble paying on debts. In fact, it may save your home from foreclosure, your car from being repossessed, and your wages from being garnished.
Chapter 13 is not a discharge, and that's the main difference. If you have tens of thousands in credit card and/or medical debt, you may prefer the other form of bankruptcy. However, the main benefit is your mortgage, your home,and your lender. You can file and avoid foreclosure on your home. You may be far behind in mortgage debt, but the papers for foreclosure haven't been filed. You can file Chapter 13, the judge will put in an automatic stay on your home, and you can pay back the debt owed over 3-5 years time. In other words, you can keep your home.
If you just lost your job, for example, filing this way may not work. You need to prove you can make payments to creditors. The best part is that you keep the assets, but you will often pay on these.
Choosing Between Them
Filing for personal bankruptcy in Texas can be difficult, but also give you a fresh start and a new chance to live life. It's not a competition: both Chapter 7 and Chapter 13 are tools to be used. However, each can benefit you in different ways.
If you're unsure, it's essential you speak with a Texas bankruptcy attorney in your area. Texas is unique, like every state, but bankruptcy has the same benefits for everyone. If you're unsure of what to do, an attorney can help.
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