Chapter 7 or 13?

There are many myths and lots of mystery surrounding bankruptcy filings, especially among consumers. In the past 18 months, news watchers have been bombarded with corporations filing for various types of bankruptcy protection. However we rarely see this type of attention on consumer bankruptcies and its types. Although there are several chapters of bankruptcy provided for within the Bankruptcy Code, most consumers file for Chapter 7 or Chapter 13. If you are considering filing for bankruptcy, you should know the distinctions between Chapter 7 and 13.

Both chapters fall under the purview of bankruptcy, which was created to allow consumers a clean slate and the ability to rebuild while under the protection of the bankruptcy court. The automatic stay applies in both chapters and both provide for a trustee to administer the bankruptcy. The main difference is that Chapter 7 bankruptcy is liquidation and Chapter 13 is reorganization.

Liquidation means that certain of the debtor’s assets will be “liquidated” or sold for money to pay its creditors. In Texas, many assets are protected, such as a debtor’s homestead, so it is important to seek experienced legal counsel to guide you through this process. A consumer filing for Chapter 7 is not required to pay the trustee and is eligible to receive a discharge on certain debts.

Reorganization means exactly what it sounds like. A consumer that files for Chapter 13 submits a plan to the court to repay its creditors. Instead of liquidating assets, a person filing for Chapter 13 would propose a manageable repayment plan to the court.  If the court approved this plan, it would become effective.  At a certain point in a Chapter 13 case, the consumer is eligible to receive a full discharge, as opposed to a partial. This can be a huge benefit to consumers who are able to make payments on their debt.

Filing for bankruptcy can be an intimidating process. However, these are just two of the options that could be available to you. An experienced Fears | Nachawati attorney is available to handle any of your bankruptcy needs.