Know your options when considering bankruptcy in Texas
When debts become too much to handle, people often wonder whether bankruptcy could give them access to a fresh financial start. What many people do not realize, however, is that not all bankruptcy filings are created equal. In fact, there are two main types of personal bankruptcy, each with their own benefits and drawback. Choosing the right type of bankruptcy is a complex task that requires a careful analysis of a borrower’s unique needs and circumstances.
Liquidation bankruptcy – Chapter 7
Liquidation bankruptcy, or Chapter 7, is perhaps the most well known personal bankruptcy option. In this type of bankruptcy, people are usually able to discharge some or all of their unsecured debts, such as medical bills or credit card debt. When a person’s debts are discharged in Chapter 7 bankruptcy, the borrower is no longer required to repay those debts. However, it is important to understand that not all debts can be discharged during liquidation bankruptcy.
Debts that are usually ineligible for discharge during Chapter 7 bankruptcy include past-due child support, certain tax debts, debt incurred by fraud, and most student loans. Student loan debts are typically very difficult to eliminate through Chapter 7 bankruptcy, although it is possible in certain rare situations.
Vehicle loans and other types of secured debt are treated differently during Chapter 7 bankruptcy. If you wish to keep the collateral securing the debt you must continue to pay the debt. This is called a reaffirmation. However, if you do not wish to keep the collateral, you may surrender it to the secured creditor who will sell the property and apply the proceeds to the debt. The balance of the debt would become unsecured and could be discharged in the Chapter 7 liquidation.
One of the potential drawbacks of liquidation bankruptcy is the fact that borrowers may be required to “liquidate” some of their assets in order to have their debts discharged. This means that certain items of property, known as non-exempt property, may be converted to cash and transferred to creditors in payment or partial payment for the debts they are owed. However, because many types of property are exempt from liquidation, it is often possible to obtain debt relief through Chapter 7 without losing any belongings at all. In Texas you are normally allowed to keep all of your personal items, such as furniture, clothing and one vehicle per licensed driver in the family.
Reorganization bankruptcy – Chapter 13
Another option for borrowers in search of relief from personal debt is Chapter 13 bankruptcy, which is often called reorganization. This type of bankruptcy is different from Chapter 7 in several important ways.
During reorganization bankruptcy, a person’s debts are not discharged right away. Instead, the borrower’s debts are restructured and a payment plan is created that will allow him or her to pay off certain high-priority debts over set period of time – typically three or five years. At the end of that time period, if the borrower has stuck to the payment plan, some or all of his or her remaining debts may be discharged.
One of the main benefits of Chapter 13 bankruptcy is that it often allows homeowners who are behind on their mortgages to prevent foreclosure and remain in their homes. Both Chapter 7 and Chapter 13 provide relief from creditor harassment through the operation of a legal device known as an automatic stay, which goes into effect as soon as the bankruptcy petition is filed and prevents most creditors from taking collection actions against the individual.
Contact a lawyer for more information
To learn more about the different legal options that may be available if you are struggling to cope with unmanageable debts in Texas, contact a bankruptcy lawyer in your area. An attorney with broad experience in bankruptcy law can work with you to find the right solution for your specific circumstances.