There are many situations where a Chapter 13 Bankruptcy is preferable to a Chapter 7 Bankruptcy. A Chapter 13 bankruptcy is a preferred choice if a debtor is behind on the mortgage or business payments and they want to keep the property, either in Texas or another state. A Chapter 13 bankruptcy allows a debtor to make up their overdue payments over time and to reinstate the original mortgage agreement. In general, if a valuable property is not covered by Texas bankruptcy exemptions that is to be kept, a Chapter 13 filing may be a better option. Also, people file Chapter 13 bankruptcy because they have too much income to file a Chapter 7 bankruptcy or have the kind of debt that is non-dischargeable in a Chapter 7 (ex. certain taxes).
However, for the vast majority of Texas residents who simply want to eliminate their heavy debt burden without paying any of it back, Chapter 7 provides the most attractive choice.
Advantages to a Chapter 7 Bankruptcy filing:
- Receive a fresh start. After the Chapter 7 bankruptcy is discharged the only debts that are owed will be for secured assets on which a “Reaffirmation Agreement” are signed. Secured debts include home and auto.
- Immediate protection against creditor’s collection efforts and wage garnishment on the date of filing.
- Wages earned and property acquired (except for inherited income) after the bankruptcy filing date are kept, not the creditors or bankruptcy court.
- There is no minimum amount of debt required.
- Bankruptcy cases are usually over and completely discharged in about 3-6 months.
Advantages to a Texas Chapter 13 Wage Earner plan:
- If the payment plan is affordable, debtors can keep all their property, exempt and non-exempt.
- While debts that are not cancelable in a Chapter 7 discharge they can be reduced under a Chapter 13 payment plan.
- Immediate protection against creditor’s collection efforts and wage garnishment.
- More debts are considered to be dischargeable (including debts incurred on the basis of fraud and credit card charges for luxury items immediately prior to filing).
- If the Chapter 13 plan provides for full payment, any co-signers are immune from the creditor’s efforts.
- Protection against foreclosure on a home by the lender as long as the terms of the plan are met.
- More time to pay debts that can’t be discharged by either chapter (like taxes or back child support).
- File a Chapter 13 at any time.
- File repeatedly.
- Separate your creditors by class where different classes of creditors receive different percentages of payment. This enables debtor’s to treat debts where there is a co-debtor involved on a different basis than debts incurred on their own.