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Bankruptcy Basics: Chapter 7 vs. Chapter 13

 Posted on January 29, 2021 in Chapter 7 bankruptcy

When you are swimming in debt, ignoring phone calls from creditors, facing a repossession or foreclosure, and your mailbox is filling up with lawsuits and letters from collectors, it can feel as though your life is spinning out of control. But, is bankruptcy really the right debt solution for you? And if it is, which personal bankruptcy option should you choose? While there are a number of factors to consider in reaching the answers to those questions, and a qualified attorney is best suited to guide you, the following information on bankruptcy basics will help you understand the basics.

Common Types of Personal Bankruptcy

Both Chapter 7 and Chapter 13 bankruptcies allow you to manage or eliminate unsecured debts and stop the proceedings of foreclosures, garnishments, repossessions, utility shutoffs, and debt collections. However, child support, alimony, fines, some types of back taxes, and most student loan debts may be exempt, leaving you still obligated to pay them. Additionally, both may allow you to keep certain assets (within your state’s maximum valuation), such as a car or primary residence. But, this is where the similarities for the types of bankruptcies end.

In a Chapter 7 bankruptcy, sometimes known as “straight bankruptcy,” you will be required to sell all non-exempt assets, including (but not limited to) vehicles, work-related tools, basic household furnishings, and additional properties. In some cases, this sale must be completed by a court-appointed trustee. In others, the items may need to be turned over to the creditor. Once your bankruptcy is discharged, you must wait another eight years before you can file again.

Chapter 13 bankruptcy used to be rather uncommon, but law changes in 2005 have made this option more desirable to individuals filing personal bankruptcy. For example, assets that might have otherwise needed to be turned over may be kept and placed on a repayment plan over the course of three to five years, as long as you have a steady income. Once you have completed the plan, you are discharged from your debts. Moreover, a Chapter 13 bankruptcy will be removed from your credit report sooner (seven years instead of 10), and you can refile as little as two years between each filing.

Is Bankruptcy Even Right for You?

Prior to filing for bankruptcy, you must receive government-approved credit counseling. And, prior to filing for Chapter 7, you must pass a “means test” to determine if you fit the income criteria. In some cases, this may show you a better or more reasonable option for resolving your debt, such as credit counseling, a home equity line of credit, or negotiations with your creditors. All options, including bankruptcy, require a great deal of effort and consideration.

Contact a San Antonio Bankruptcy Lawyer

At the Law Offices of Chance M. McGhee, we understand just how stressful debt can be for you and your family, which is why our offices focus on helping you determine the best solution for your unique situation rather than pushing for bankruptcy that may not be right for you. For help with creditor harassment, personal bankruptcy, or determining which debt solution may be best for you, schedule a free initial consultation with our experienced South Texas bankruptcy attorney. Call 210-342-3400 for an appointment today.


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