Should I File Chapter 13 Or 7 Bankruptcy?

If you live are under tremendous financial pressure and unable to pay off your outstanding debts, then filing bankruptcy may be the only viable option that you have.

As an individual you have a choice of filing for bankruptcy under two chapters. An explanation of both the chapters - and how to choose the chapter more suitable for you - is given below.

Chapter 7

You can file for bankruptcy under Chapter 7 only if you pass the "Means Test".

This test involves calculating your gross income and assets and deducting your liabilities and your expenses during the past 6 months prior to you having filed for bankruptcy. These numbers are then compared with the average median income of a similar sized family in Texas.

If your net income is lower, then you qualify for filing under Chapter 7; otherwise, you may have to file under Chapter 13. Once you file under Chapter 7, the court will appoint a trustee, who will sell off your unprotected or non-exempt assets to pay off your creditors.

Your case can be discharged within 6 months if you file for bankruptcy under this Chapter. Since normally your home and cars will be exempt, you will be able to retain these assets.

If your home and car are at risk as a result of not being able to meet your obligations, then you can see why retaining a qualified bankruptcy attorney like Allmand and Lee to file Chapter 7 on your behalf is a wise choice.

Chapter 13 Explained

Unlike Chapter 7, filing under Chapter 13 will give you the chance to repay your outstanding debts over a longer period of time, usually between 3 to 5 years. You also have the chance to keep all your property.

As with Chapter 7, once your attorney files for bankruptcy under Chapter 13 on your behalf, your creditors will no longer be able to foreclose on your home or take your possessions. By law, they must also stop harassing you immediately.

Once you file under Chapter 13, you will need to submit a repayment plan to the court, detailing your plan to pay off your debts. Your bankruptcy attorney can even try to get a part of your loan discharged, so that you can pay off the rest.

If your plan is approved, the court will appoint a trustee, who will monitor your repayment schedule to ensure that you stick to it.

Chapter 13 or 7?

Usually (depending on the situation), individuals try to file for bankruptcy under Chapter 7 in order to get most of their outstanding debts discharged. The time taken to do this is also quite less as compared to filing under Chapter 13.

The problem is that with the new, stricter laws put into place after October 2005, you might find it difficult to file under Chapter 7 and might have to file under Chapter 13. Most of your assets may also be disposed of by the court trustee in order to satisfy your creditors.

This might not happen under Chapter 13.

Therefore, Chapter 13 allows you to stay in control as you chart out a repayment plan stretching between 3 to 5 years. If you are wary of losing many of your assets and do not mind a longer repayment plan, then you could ask your bankruptcy attorney if you can file under Chapter 13.

However, if you want your case to get discharged within a short time and are unable to come up with a long-term plan to raise money to pay off your creditors, then filing under Chapter 7 would be a better option.

So, compare both chapters with your bankruptcy attorney before deciding on which chapter is the better option.