If you are thinking about filing bankruptcy in Texas, you undoubtedly have many questions about the various options available and which one best fits your situation.

FindLaw explains that Chapter 7 and Chapter 13 are the most popular types of bankruptcy, and each of them has its own advantages and disadvantages.

Chapter 7

If most of your financial difficulties have to do with your consumer debt, such as your credit card debt, Chapter 7 likely is your best option. It offers you the following advantages:

  • Simple procedure
  • Automatic stay immediately upon filing during which none of your creditors can take any collection action against you or harass you about your overdue bills
  • Reasonably short period of bankruptcy
  • Discharge of your consumer debts

The downside of Chapter 7 is that you must meet its income guidelines in order to qualify. Additionally, it is not a good choice if you face foreclosure of your home. Chapter 7 does not stop foreclosure; it merely delays it.

Chapter 13

Chapter 13 bankruptcy, unlike Chapter 7, is not a discharge procedure. Rather it is a reorganization procedure. It still features the automatic stay period regarding your creditors, but other than that is completely different from Chapter 7.

Once you file Chapter 13, you get to renegotiate your various debts, including your mortgage, with your respective creditors. Usually, this results in a significant reduction of the principal amount remaining, plus the interest rate you pay. Then you devise a repayment plan that the court will approve and start paying down your debts over a three- to five-year period. This gives you time to work your way out of debt and get yourself out of financial difficulty. None of your creditors, including your mortgage lender, can do anything bad to you, such as foreclosing on your house, as long as you make your payments according to the plan you devised.

The down side of Chapter 13 is that it puts you in bankruptcy and on a quite strict budget for a significant period of time. But it represents the best way to save your home from foreclosure.

This is general educational information and not intended to provide legal advice.