Choosing Which Type of Bankruptcy is Right for You
Choosing to file for bankruptcy is a major decision. So is choosing which type of bankruptcy you file. Thousands of individuals and businesses make these critical choices every year.
In 2020, there were 26,723 bankruptcies filed in the state of Texas. Nearly 60% of those were Chapter 7 cases. Chapter 7, Chapter 11, and Chapter 13 all work differently but achieve the same goal — providing a fresh financial start for people or businesses overwhelmed by debt.
For nearly two decades, our team at Oliva Law Bankruptcy has helped clients in McAllen, Brownsville, Harlingen, Corpus Christi, and throughout the Rio Grande Valley of Texas explore which type of bankruptcy is right for them. Everyone deserves a new start. The question is which path you take to get there.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy discharges, or “forgives,” your unsecured debt, essentially wiping your financial slate clean. In exchange, a court trustee will liquidate the assets you have and distribute any proceeds among your creditors.
Chapter 7 is reserved for those who meet income requirements via a “means test.” This test calculates your monthly disposable income, deducting living expenses from your monthly income. It is designed to keep higher wage-earners from discharging all debt when they are capable of repayment.
Chapter 7 bankruptcy will discharge unsecured debt, including but not limited to credit cards, personal loans, and medical bills. It can also discharge balances due on your auto loans and mortgages, although you will have to surrender your vehicles and real property to do so.
Chapter 7 will not relieve debt from obligations such as alimony and child support, student loans, back taxes, court fees and penalties, homeowner association fees, and judgments against you for certain personal injury claims. It also won’t take care of any unsecured debt you didn’t have discharged in your bankruptcy case.
Chapter 7 bankruptcy is a good option for people who own little or no property and pass the income means test. It is also a sound choice when most of your debt is unsecured and you can eliminate your debt over a period of months rather than years.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is often called the “wage earner's" plan. Rather than wiping out all debt, it offers you the opportunity to keep the property you own in exchange for agreeing to pay back your creditors over a three- to five-year period.
To file for Chapter 13, you must meet certain requirements regarding the amount of secured and unsecured debt you have, have a steady income, and file as an individual, not a business. Filers are required to prove to the court that their income is regular and sufficient to pay the monthly repayment sum in addition to their normal monthly obligations.
Chapter 13 bankruptcy is like a consolidation loan. Your debt remains but is restructured in a way that makes it easier for you to pay off with your discretionary income over time. It can help you avoid losing your secured property and soften the impact bankruptcy can have on your credit score. Chapter 13 can also protect anyone who co-signed for your secured debt.
Chapter 13 bankruptcy will not discharge debts such as child support, alimony, and taxes. You will need to keep current with those payments throughout the course of the bankruptcy, but Chapter 13 might help you catch up with overdue payments.
Chapter 13 is a solid option for those who have regular income and want to get their debt under control by managing it effectively, or for those who want to avoid home foreclosures and vehicle repossessions and have time to catch up with any overdue payments.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is an option for corporations, partnerships, and sole proprietors who want to deal with their debt but remain in business. Chapter 11 can reduce debt, provide a longer repayment period, or prompt business reorganization to make repayment manageable.
How an Attorney Can Help
Anyone considering filing for bankruptcy can benefit from the help of an experienced bankruptcy attorney. Retaining one to help you explore your options and navigate the process is the best investment you can make to right your financial ship.
Thousands of individuals and businesses in McAllen, Texas, and throughout the Rio Grande Valley have trusted us at Oliva Law Bankruptcy to help them overcome the stigma of bankruptcy and start fresh. We have offices in McAllen, Brownsville, Harlingen, and Corpus Christi for your convenience.
If you are drowning in debt and want to know what you can do, don’t wait any longer. Call our office today to schedule a free consultation to see if we can help you find relief.