Sometimes, debts get overwhelming, and a consumer in Texas needs a way out. Bankruptcy helps give individuals a legal way to remove some debts and protect themselves from creditors. Consumers have the choice of several types of bankruptcy, but many people choose Chapter 7 and Chapter 13.
Chapter 7 bankruptcy
Chapter 7 bankruptcy helps remove some unsecured debts, such as credit card debt and medical bills. However, it requires selling nonexempt assets, or nonessential items, which include second home or vehicle and jewelry.
The filer must pass a means test, which determines eligibility to file Chapter 7. Then, the filer lists all of their assets and income sources on the petition and files it with the court. A trustee will split the proceeds from sales between creditors, and the filer gets a discharge in four to six months. After the discharge, the filer is no longer obligated to pay the qualifying debt.
Chapter 13 and Chapter 11 bankruptcy
Chapter 13 bankruptcy is a reorganization plan that allows filers to pay debts over three to five years. A benefit of Chapter 13 is that the filer doesn’t have to sell property as long as they maintain bankruptcy payments. However, bankruptcy doesn’t remove primary liens, so they must stay current on mortgage or vehicle payments to keep the property.
Chapter 11 bankruptcy works the same as Chapter 13, but it is for filers with debts that go above Chapter 13 limits. Chapter 11 also makes it easier for small businesses to file bankruptcy under Small Business Reorganization Act. However, filers need sufficient income to qualify for Chapter 13 or Chapter 11 and commonly must pay creditors the value of property rather than getting the debts completely dissolved.
Bankruptcy doesn’t have to be a negative thing if the filer has exhausted all their other possibilities. A financial advisor may help an individual choose the right type to file based on their income and situation.
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