The internet has become a very useful tool for consumers in helping to identify and fix problems. You can figure out all sorts of dilemmas nowadays, everything from diagnosing an illness to how to accomplish any home improvement task. While this article is not a replacement for an attorney’s advice, here are some helpful hints about whether a chapter 7 or chapter 13 bankruptcy is best to help you deal with your financial situation.
Chapter 7 is the type of bankruptcy that most people think of when they hear the term “bankruptcy.” It is designed as a liquidation. A trustee is appointed to review all of the things which you own. Based on either the laws of your state or federal laws, a determination is made as to how much of the property you own may be protected by the court. Property that is not protected is sold to pay off your debt. In the Dallas-Fort Worth area of Texas, most people do not have to worry about having their property liquidated because Texas provides generous laws. Chapter 7 debtors in the Dallas-Fort Worth area that file bankruptcy get to keep their homestead, their vehicles, and between $30,000-$60,000 worth of personal property. The result for most Dallas-Fort Worth filers is that the chapter 7 bankruptcy serves as a debt eraser because there is no property the Trustee can sell to pay off creditors. However, not everyone qualifies to file a chapter 7 bankruptcy. A means test is required to determine if you meet the income qualifications to file and have your debts erased.
Chapter 13 is designed to help you reorganize your debts. While there is still a concern over what property you own, nothing is ever sold in a Chapter 13 to pay off your debts. Instead, a trustee is appointed to manage payments to your creditors. It is useful for people who have fallen behind on their mortgage payments, vehicle loans, owe money to the government for taxes, or child support. At the beginning of your case, a determination is made about how much you can afford to pay your unsecured creditors – the credit card debt, bills in collection, and medical bills. The amount you pay to unsecured creditors is based on a calculation of your gross income compared to the average income for the area in which you live. Then, you receive credit for the amount most people spend on average for household expenses. You also receive credit for paying taxes, health insurance, 401k and retirement contributions. The outcome of the calculation results in the amount the court says you must pay to your unsecured creditors, which can range anywhere from 0% to 100% depending on your income level. Then, you propose a repayment plan and make payments for a period that ranges from 36-60 months, depending on your income level. The plan can also include any amount that you may have fallen behind on for your home or vehicle payments and can help pay off debt to the IRS or past due child support.
How can you determine what is the best type of bankruptcy for you? The best thing is to schedule a free bankruptcy consultation with a trusted bankruptcy attorney. However, looking at the two chapters of bankruptcy, Chapter 7 is best for individuals who cannot afford to maintain payments on their debt anymore. Many people have experienced a reduction in income that has left them unable to manage payments to unsecured creditors or may even have a home or car that they no longer are able to continue to make payments towards and just want to walk away. Whereas, Chapter 13 is best for individuals that are behind on payments for their house or car but still want to continue to keep them and catch up the payments. Chapter 13 is also for individuals that can afford to make some payment towards their debt but not by the terms demanded by your creditors.
During a free consultation with a trusted bankruptcy attorney, you should review your current financial situation with the attorney, which should include: whom you may owe money to, what payments you have made in the last 3 months, how much income you have received in the last 6 months, and how much your income is at the time of your consultation. Be sure to tell the bankruptcy attorney what your goals are and what you would like to happen with your financial situation. Beware of attorneys who tell you that you should file bankruptcy without discussing your entire financial situation. Your consultation should give you an idea about what options are available to you and give you the information you need to make a decision that is best for your financial situation.
Christine Magee has successfully handled over 700 bankruptcy cases in her career with as a lead associate for The Hopping Law Group, PC. She has authored numerous briefs that have changed the bankruptcy landscape in the Northern District of Texas.