What Is the Difference Between Chapter 7 and Chapter 13 Bankruptcy in Texas?

Bankruptcy is a serious financial and legal matter. It is not a silver bullet to fix financial troubles, and both the financial and legal implications of beginning bankruptcy proceedings deserve a thorough examination. Part of the process of making the decision is to assess the different forms of personal bankruptcy, Chapter 7 and Chapter 13.

A specialized bankruptcy firm can be your best legal asset for protecting your financial assets during the bankruptcy process. A highly-regarded attorney from Steele Law Firm in Fort Worth can be a great aid for navigating the bankruptcy process.

Reasons to File for Bankruptcy

Nobody wants to arrive at a point in their life where bankruptcy becomes a consideration. A crippling load of debt is, unfortunately, a common occurrence. People arriving in dire financial straits that warrant bankruptcy examination include:

  • Medical debt from a severe injury or illness
  • Loss of job during an economic downturn
  • Failed business ventures or depreciating investments
  • Excessive credit card debt
  • Issues with addiction to substances or detrimental behaviors

These circumstances and many others can lead to a debt picture that makes foreclosure and repossession serious concerns. Bankruptcy can provide a means to reset your financial circumstances by discharging some or all of your unsecured debt, which are debts that aren’t backed with collateral. If you’ve decided it’s time to consider filing for bankruptcy, consulting a Fort Worth bankruptcy attorney can help weigh the options of Chapter 7 and Chapter 13 bankruptcy.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy cases tend to be resolved faster than Chapter 13 cases, but the long-term impacts are still consequential. Asset liquidation is generally involved. Your debts are settled by a trustee liquidating your non-exempt assets. State laws and marital status can impact what assets may be protected, especially when it comes to a primary residence and the amount of equity held in it, making it all the more critical to work with an attorney that specializes in bankruptcy law where you live.

A Chapter 7 bankruptcy case can be resolved in as little as three to five months. Qualifying for Chapter 7 bankruptcy isn’t as easy as Chapter 13. There is a median salary and means-testing stipulation the court will use to determine your eligibility.

If your Chapter 7 bankruptcy filing is accepted, your unsecured debts will be discharged immediately. A court-appointed trustee is empowered to sell any non-exempt assets. Avoiding the sale of assets is one of the reasons some individuals may prefer to file under Chapter 13, where assets can be kept while their value is factored into the payments required from the debtor to the creditors.

If Chapter 7 bankruptcy isn’t an option because of income or any other circumstances, Chapter 13 is the most common avenue to pursue.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy involves the creation of a repayment plan that is carried out over three to five years, so the time invested in this path is greater. A bankruptcy estate seizing and selling your possessions is not a part of Chapter 13 bankruptcy, unlike the Chapter 7 path.

Under Chapter 13, none of your debt is immediately discharged. The terms of your repayment plan may permit some of your unsecured debt to be discharged in part through the satisfaction of the terms of the payment plan. The goal of the payment plan is to establish a more manageable monthly payment and lower the overall monthly payment obligations.

Bankruptcy actions filed under Chapter 13 can allow you to save assets that may be in danger of being repossessed, like a home or vehicle. The payment plan created through the filing will provide a more manageable sum of money to put toward debts each month.

Types of Debt Not Discharged During Bankruptcy

The most common debts bankruptcy won’t discharge are secured debts and debts created by government action. These debts may include:

  • Mortgages
  • Back taxes or fees owed to a government entity
  • Child support or alimony payments
  • Loans on vehicles
  • Student loan debt

Some secured debt can be canceled under Chapter 7 if the security is an exempted asset the debtor wishes to voluntarily surrender. For example, an auto loan may be discharged but requires the debtor to surrender the car.

What Options Exist Besides Bankruptcy

Bankruptcy is looked at as a last resort for many people, but if you’re living with crippling debt and aggressive debt collection calls daily, it may be the best option. Filing for bankruptcy may be unpleasant, but the experience will be worse if you wait until your financial circumstances are even direr. Contact a reputable Texas bankruptcy attorney before getting deeper in debt with a technique of relief that may not work.

  • Negotiating with creditors is an option, but your leverage will likely determine how receptive they will be. While some may be amenable to deferring payments or decreasing interest rates, if you are already at or near your balance maximum and have a history of late or skipped payments, there is very little reason for them to work with you.
  • Use a debt consolidation firm. While this technique works for some people, the fees involved may lead to your savings not being nearly as substantial as they would have been in bankruptcy.
  • A short sale of your home may seem like a good option to quickly get money to pay down other debts, but the impact on your credit will still be negative, and you’re left without a place to live. Using your home as an asset to pay off unsecured debts is unwise compared to bankruptcy, as a bankruptcy estate prioritizes allowing the debtor to keep their primary residence in addition to discharging or diminishing unsecured debt.

Bankruptcy isn’t the only option for many people in debt, but it may be the best option. When you reach a stage of debt where it is the only option, bankruptcy is more complicated and painful.

Hire a Fort Worth Bankruptcy Attorney

The Steele Law Firm only does one thing, and that’s bankruptcies. Compassion and empathy are important when working through the sensitive process of bankruptcy, and it’s our specialty. Contact us today to start the conversation about what option may be best for you.

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