If you have confidently reached the conclusion that filing for
bankruptcy, you are really only halfway done with that decision, as you still need
to decide if you want to file for
Chapter 7 or
Chapter 13. Both provide valuable debt relief but each functions noticeably different
from the other. If you want to know that your bankruptcy will work and
is right for your end goal, you need to understand each type available to you.
Chapter 7 for Unpayable Debt
If your debt is so cumbersome and great that you know you will never be
able to pay it off, you are probably going to want Chapter 7 bankruptcy.
This form of bankruptcy typically erases the majority, if not all, of
an individual’s debt, whether it is secured or unsecured. However,
in exchange for the elimination of so much debt, creditors may be able
to stake a claim on collateral property, such as homes, automobiles, heirlooms,
savings account, etc. People using Chapter 7 bankruptcy should be prepared
to lose at least a little bit of their personal property, as it is quite
rare to be able to keep everything.
Furthermore, Chapter 7 bankruptcy’s power to do away with debt entirely
is only provided to those who really need it. Before you can file, you
need to qualify for it by passing the
means test. In relatively simplified terms, the means test is an examination of your
average monthly income compared to the average of others in your state
and income bracket. If you make more than the average person, you cannot
file for Chapter 7.
Chapter 13 for Overwhelming Debt
Some debts are overwhelming but not necessarily unpayable. If you’re
in such a situation, Chapter 13 might be right for you. A Chapter 13 bankruptcy
involves reviewing all of your debt and negotiating for sizeable reductions,
not necessarily eliminations, of it. Once you manage to have creditors
agree on the debt reduction percentage, you will be expected to pay off
whatever is left over the course of three or five years. After that timeframe
is up, if you made your best effort to pay off your debt but still couldn’t,
the remainder may be discharged completely.
You might think, “Why would I want to use Chapter 13 if Chapter 7
can totally eliminate my debt?” One of the
benefits of restructuring your debt through Chapter 13 is that creditors typically
have less access to collateral property. If you cannot stand the idea
of losing your home, car, and so on, Chapter 13 is more likely to protect
those items since you are still paying some of your debt.
Making the Right Choice with Confidence
Even with the information given in this overview, you may understandably
still have a great deal of questions and concerns regarding bankruptcy. It is a
huge decision, one of the biggest in your life, and should not be rushed, after
all. For more information, feel free to call
409.234.1490 and connect with Maida Law Firm, P.C. and our Houston bankruptcy attorney.
We can help you sort the
bankruptcy myths from the facts and tell you about similarities between both forms of personal
bankruptcy options, such as automatic stays.
Contact us today to get your own
FREE case review to get started.