If you’re considering bankruptcy, you may be wondering whether you should file a Chapter 7 or a Chapter 13. Most people don’t know the difference and may end up making the wrong choice. Discussing your situation with an experienced bankruptcy attorney in Allen TX is the first step toward deciding which chapter is right for you, but here is some general information to help you understand the difference.
Chapter 7 vs. Chapter 13
Whether you should file Chapter 7 or Chapter 13 depends upon a number of factors, including (but not limited to):
- Your household income from all sources, including your spouse, Social Security payments and support payments
- The total value of your assets, such as your house, your car, your furniture, your collectibles and anything else you may own
- Your total debt, including credit card debt, medical bill debt, mortgages and car loans
- Any payment arrears on secured loans, like mortgage payments or car payments
Chapter 7 is a liquidation bankruptcy. A chapter 7 trustee is appointed by the court to review your assets and see if there’s anything to sell to repay your creditors. However, most people are able to keep everything they own, because bankruptcy law allows you to exempt certain property from the bankruptcy estate, which means the trustee can’t touch it. Chapter 7 is typically quick and simple; ordinary Chapter 7 cases last only a few months, and at the end, you receive a discharge. The discharge means your liability on most or all of your debt is wiped away – that means credit cards, medical bills, personal loans and even some income taxes. If you have a car payment or a house payment, you can keep the car and the house if you can show the court you can afford the payments. Or, if your property is too expensive and underwater, you can walk away from it. Essentially, you can give your car or house back to the bank and owe nothing.
Chapter 7 is a good choice if:
- You don’t have enough income to repay anything to your creditors.
- You don’t have a lot of valuable property.
- You have a high amount of debt.
- You owe the IRS for old income taxes (note that not all income taxes are dischargeable).
Not everyone qualifies for Chapter 7; however, there are other options available, including Chapter 13.
Chapter 13 bankruptcy is like a financial reorganization for individuals. When you file Chapter 13, you must propose a repayment plan and pay back your creditors in a certain way. General unsecured debts, like credit cards and medical bills, can be paid pennies on the dollar. You can also use Chapter 13 to catch up on your car payment and your house payment and avoid repossession or foreclosure. You can also pay off your property taxes.
Chapter 13 plans run anywhere from three years to five years, depending on various circumstances. Chapter 13 does have debt limits, however, and if you go beyond those limits, you may not qualify.
Chapter 13 might be right for you if:
- You can afford to make a monthly payment on your debts.
- You’re behind on your house payment or car payment and want to stop foreclosure or repossession (note that you must file your case before a foreclosure sale in order to stop the sale; afterward is too late).
- You have a lot of IRS taxes to repay.
Whether to file Chapter 7 or Chapter 13 is a big decision, and you’ll need to talk to a knowledgeable bankruptcy attorney. Allen TX attorneys at Collins & Arnove offer free consultations. Call (972) 516-4255 to discuss your situation.
Collins & Arnove | Bankruptcy Attorney Allen TX | 972-516-4255