An individual filing for bankruptcy in the Dallas area has two types of bankruptcy available to them. First, Chapter 7 bankruptcy allows the filer to discharge many types of debt, often with no repayment to creditors. Second, Chapter 13 bankruptcy allows the filer to reorganize their debt through an affordable payment plan which lasts three to five years. Which Chapter a debtor should file depends on their specific financial situation and eligibility.
Who Can File?
- Chapter 7 bankruptcy is available to individuals, partnerships, corporations and other business entities. However, only debtors who have income below the median income for their household size in the area they live qualify automatically. Debtors whose income is above the median must pass a means test which deducts standard IRS deductions from their current income to determine whether there is any disposable income available to repay creditors. Too much disposable income will disqualify the debtor from Chapter 7 relief.
- Chapter 13 bankruptcy allows debtors to repay some or all of their debt in a repayment plan which typically will last three to five years. Chapter 13 bankruptcy is for debtors who are behind on payments to secured lenders (like mortgage companies and car creditors) but wish to keep the property. The repayment plan gives the debtor a way to cure the missed payments and keep their collateral. Debtors who do not qualify for Chapter 7 relief because their income is too high may also choose Chapter 13 bankruptcy as a way to reorganize their debt.
Chapter 7: Liquidation Bankruptcy
- Chapter 7 bankruptcy is sometimes referred to as a “liquidation” bankruptcy. However, in Texas we have a very flexible set of exemptions, which allows the vast majority of debtors to file for Chapter 7 relief without losing any of their property.
Chapter 13: Reorganization of Debts
- Chapter 13 bankruptcy involves a repayment plan. Debtors filing under this chapter repay unsecured creditors (credit cards, medical bills, payday loans) to the extent they can afford to do so. Basically, if the debtor has disposable income then they will have to pay back some or all of their debt. However, many Chapter 13 plans are approved in which no unsecured creditors are being paid. Secured creditors can sometimes be paid through the plan, but payments can be paid to the creditor directly.
Which Chapter Should you File?
- The bottom line is that whether a person files Chapter 7 or Chapter 13 bankruptcy largely depends on their specific situation. If the debtor simply wants to discharge their unsecured debt then Chapter 7 is a great tool. However, if they don’t qualify for Chapter 7 relief because their income is too high, then Chapter 13 should be considered. It may not be a desirable as the quick discharge available under Chapter 7 bankruptcy, but it is still a much better option than doing nothing. Chapter 13 is also a great tool for protecting secured property, such as houses and cars, from being seized by creditors for missed payments.
If you are struggling with your financial situation, please call The Wright Firm to discuss your financial situation. We offer free consultations. Please call us at (972) 353-4600 or visit our website at www.northtexas-bankruptcy.com.
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