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Jan. 21, 2019

Chapter 13 Bankruptcy can Help, but it’s not the only Strategy for Debtors

Most individuals who file for bankruptcy file a Chapter 7 liquidation bankruptcy. If you don’t pass the means tests for a Chapter 7 bankruptcy, then your other bankruptcy option is a Chapter 13 debt reorganization. With Chapter 13 bankruptcy, you create a debt reorganization plan to settle what you owe. But Chapter 13 has some advantages and disadvantages for debtors.

Some Good Things About Filing Chapter 13 Bankruptcy

The benefits of filing Chapter 13 bankruptcy include the following:

  • Debts and bankruptcy are removed from your credit report sooner. All accounts listed in the bankruptcy filing are removed from your credit report within seven years. The bankruptcy will only appear for up to seven years. Other types of bankruptcy may stay on your credit report up to ten years.

  • Your assets will not be sold. In Chapter 7 bankruptcy, some of your assets may be sold to pay your creditors. You can retain your property and other assets n Chapter 13 bankruptcy.

  • There are no income tests. Chapter 7 bankruptcy has specific income parameters and means testing. Anyone at any income level can file for Chapter 13.

  • You can take more time to get out of debt. With a Chapter 13 restructuring plan, you can have more time to pay off your debts. You also have options to reduce payments, relinquish property or extend the number of payments.

  • Future lenders look more favorably on Chapter 13. Because you are making payments and reorganizing debt, lenders look at Chapter 13 in a more favorable light than Chapter 7 where you cancel your debt. Chapter 13 filers can reestablish credit relatively quickly in 12 – 36 months.

An experienced bankruptcy attorney can help you determine if these benefits are worthwhile in your specific circumstances.

Some Drawbacks to Filing Chapter 13 Bankruptcy

The disadvantages to filing for Chapter 13 bankruptcy include the following:

  • Chapter 13 stays on your credit report for seven years. Though Chapter 13 stays on your credit report for less time than Chapter 7, it still has a negative impact on your credit report.

  • Your debt reorganization plan will take at least three to five years. Generally, the time you will spend repaying debt depends on your income. Though longer plans may mean smaller payments, they also mean you will be paying off your debts for a greater length of time.

  • Your disposable income is dedicated to payments. While you are in the repayment plan period, any income you have after taking care of necessities goes to paying your debt. This means no vacations, dining out or other simple pleasures.

  • You need to file income tax returns for the previous four years.

  • Bankruptcy may impact your future employment opportunities. Employers often do credit checks on job candidates and may discount you if your credit report shows a bankruptcy.

An experienced bankruptcy lawyer in Texas can help you understand whether filing Chapter 13 bankruptcy is the best alternative for your specific circumstances. Your attorney may recommend an alternative such as a debt management or a free credit counseling program before you file for bankruptcy or as an alternative to filing.

Ask a Texas Bankruptcy Lawyer Whether Chapter 13 Bankruptcy is a Good Choice for You

The Oliva law firm helps people in Brownsville, McAllen, Harlingen, Corpus Christi and throughout the Rio Grande Valley make decisions about filing for Chapter 13 bankruptcy.

About the Author: Marcos Oliva Marcos Oliva is the principal attorney at Oliva Law. He is admitted to practice law in the State of Texas, the United States District and Bankruptcy Courts in the Southern District of Texas, and the United States Patent and Trademark Office.

Jan 21st, 2019