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How to Decide Between Chapter 7 and Chapter 13 Bankruptcy
Do you have significant debts that you are struggling to repay? Are you constantly dealing with calls from creditors? Are you worried about losing your home or other property? These issues affect many Americans, and debt can become unmanageable for multiple reasons, including financial factors that are out of your control, such as losing your job or suffering an illness that led to large medical bills. In these situations, it is important to remember that you are not alone, and you may be able to use our country's bankruptcy laws to receive relief from your debts. However, there are typically two options when filing for bankruptcy -- Chapter 7 and Chapter 13 -- and understanding how to choose between them is not always easy.
Weighing Your Bankruptcy Options
The primary difference between Chapter 7 and Chapter 13 bankruptcy is that Chapter 7 bankruptcy results in the liquidation of your assets, while Chapter 13 bankruptcy sets up a repayment plan for your debts. A Chapter 7 case can usually be completed fairly quickly, and it will allow multiple types of debts to be discharged after any non-exempt assets you own are seized and sold to pay off some of what you owe. A Chapter 13 case is often more complicated, and it will require you to make monthly payments for several years, although you will not be required to turn over any property.
What Types of Debts Cannot Be Discharged?
People who are seeking relief from debt have the option to declare bankruptcy. Depending on their overall financial situation, most individuals will file either Chapter 7 or Chapter 13 bankruptcies to stop debt collection and have their debts discharged. However, there are certain types of debts that cannot be discharged through the bankruptcy process, known as non-dischargeable debts. If you are overwhelmed with debt and considering filing for bankruptcy, even if the majority of your debt appears to be non-dischargeable, an experienced attorney can help you explore your options.
Texas Bankruptcy Non-Dischargeable Debts
There are several types of non-dischargeable debts, or debts that cannot be wiped out when you file for bankruptcy. These debts include:
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Student loan debt – Student loan debt is often a source of significant debt. Loans which are government-funded or guaranteed educational loans are usually non-dischargeable. However, in cases where the debtor can show that repayment would cause them undue hardship, they may be dischargeable.
What happens to my house and car in bankruptcy?
One of the most common questions attorneys at Acker Warren, P.C. are asked by potential client’s is, what happens to my house and car in bankruptcy?
The short answer to this question is that you almost always may keep and continue to pay for you home and car. However, it depends on a multitude of factors, for instance, what state you live in, if you are current on the payments, is it your only house or vehicle, what other property do you own, etc.?
To more thoroughly understand what happens to a home or vehicle in bankruptcy an explanation as to the different types of debts, the different types of assets, and the different chapters of bankruptcy is necessary.
Secured and unsecured debts
Secured debts – These are debts where collateral is given for the loan. In other words, a creditor can come and take back something from you if you do not pay for it. The most common secured debts are those for a home or a vehicle, where the home or vehicle that was purchased serves as the collateral for repayment of the loan.
Why are debt collectors harassing me?
A Debt collector’s purpose is to recover money owed on delinquent accounts. Sometimes the Debt collector has been hired by a creditor to try to recover the delinquent debt and other times the Debt collector has purchased the debt from the original creditor. Some examples of why debt collectors may contact you are unpaid medical bills, delinquent credit card debt, delinquent phone/ utility bills, delinquent car loan payments, deficiency balances on repossessed or foreclosed property, back taxes, etc.
However, just because a Debtor is delinquent on a debt or account, this does not mean that a Creditor or Debt Collector has free reign to try to collect the debt by any means they see fit. The Fair Debt Collection Practices Act (FDCPA) is a law that sets out the parameters that a Creditor/ Debt Collector is allowed to attempt to collect on a delinquent debt. Harassment and its definitions are set out under the law. If a creditor violates the FDCPA a Debtor has the right to sue for damages created by the violations of the FDCPA.
Bankruptcy and Your Credit Report: How Long Will It Stay There?
When you file for bankruptcy under Chapter 7 or Chapter 13 it can stay on your credit report for up to 10 years. Luckily for most of our clients, the bankruptcy being reported on their credit report isn’t too damaging. Most of our clients actually see their score improve, because their debt-to-income ratio instantly improves, and because creditors are required to remove any negative reporting from the credit report. As a result, getting a car, loan, or credit card is typically not difficult.
Additionally, there are actions you can take on top of filing bankruptcy in order to hasten the process of improving your credit score. This post details some strategies to achieve that goal.
Chapter 7
You can discharge most, if not all, of your debts after filing for Chapter 7 bankruptcy. This means that a lender cannot collect a discharged debt, and you’re no longer responsible for repaying it.
Bankruptcy Due to Medical Bills
Medical bills are a very common reason people file for bankruptcy. For those who cannot pay their medical bills and do not file for bankruptcy, their situation likely will worsen.
If you are unable to pay medical bills, you’ll start getting late-payment notifications, and late fees will accrue. The medical provider may sue you in the future and win a monetary judgment against you, or it could also result in wage garnishment, a bank levy, or the placing of a lien against your non-exempt property.
Medical Bankruptcy
If you can’t pay the bill and it appears that the creditor will pursue you for payment, your good credit will suffer since a collection action will appear on your credit report. If they sue you and win the case, the medical provider could garnish your bank account or pursue other collection measures. When it comes to bankruptcy, filing as soon as possible could help you get back on your feet financially faster.
Chapter 7
For those with modest incomes, and assets with little or no equity, Chapter 7 bankruptcy is a great option. There is no requirement for you to have a specific amount of debt. You can apply for Chapter 7 bankruptcy if you owe a single large amount. It is possible to wipe away medical bills and most other unsecured debts in a Chapter 7 bankruptcy.
Can You Keep Your Car When Filing for Bankruptcy?
You may be asking, though, how you can keep your car when filing for bankruptcy.
There are two main types of bankruptcy: Chapter 7, which involves liquidating non-exempt assets (in Texas thankfully very few assets, for most people, are non-exempt), and Chapter 13, which focuses on debt repayment. What will happen to your vehicle if you file for bankruptcy is determined by the type of bankruptcy you declare and the amount of equity you have in your car.
In case you file Chapter 7
Most of your debts are discharged, meaning your legal liability to pay the creditor/ debt has been extinguished in Chapter 7 bankruptcy. In exchange, you must surrender non-exempt property which the bankruptcy trustee will sell and use the funds to pay your unsecured creditors. In Chapter 7, the ability to keep your vehicle is determined by whether or not your equity is classified as exempt and whether or not you are behind on your car payments. (Equity = Balance of Loan – Vehicle Value) An experienced attorney can help you navigate the potential pit falls of filing for bankruptcy with a vehicle that you want to keep or surrender. It is extremely unlikely to have a non-exempt vehicle in a Chapter 7 bankruptcy.
Stopping Foreclosure in Texas With Bankruptcy
If debt has taken over your peace of mind, you may be considering filing for bankruptcy. An experienced attorney can explain your choices and help you find a solution to collection letters and harassing phone calls from creditors. Bankruptcy can alleviate your financial stress and provide a fresh start.
If you’re considering filing for bankruptcy, you’re probably worried about losing your house, car, or other valuables. This is where the experience of Acker Warren, P.C. can help. An experienced lawyer can assess your case and come up with a solution that is beneficial for you and helps you retain your assets.
Filing for Chapter 7 and Chapter 13
When choosing how to stop foreclosure proceedings in Texas, one option is to declare bankruptcy. The automatic stay is in effect immediately upon filing of a Bankruptcy Petition. The Automatic Stay halts all collection actions against a Debtor including foreclosure. Your mortgage creditor is prohibited by the Court from moving forward with foreclosure once the case has been filed.
Answers to Popular Bankruptcy Questions
Over many years of practicing bankruptcy law, we have found that certain questions consistently reoccur. If you are considering filing for bankruptcy, the below questions have likely crossed your mind.
Please remember that this is broad information that may or may not apply to your unique situation. It’s critical to discuss your specific circumstances with an attorney who has the knowledge, expertise, and experience to assess your financial situation.
Below you will find the answers to frequently asked bankruptcy questions. These answers can help you decide whether to proceed with the bankruptcy procedure or look into alternative debt-relief options.
How does bankruptcy work?
The two most common kinds of consumer bankruptcies are Chapter 7 and Chapter 13.
Chapter 7 bankruptcy dismisses almost all types of debts, such as credit card debt, medical bills, and loans. In the unlikely event that a debtor has non-exempt property (vacation homes, boats, excessive jewelry), the bankruptcy trustee may sell those assets and use the profits to pay your creditors. Qualification for Chapter 7 is largely based on income, and there is no required payment to creditors.
Prevent or Avoid Repossession
One of the most common concerns among bankruptcy filers is the potential of losing their property after filing the case. Our clients obviously rely on their vehicles to go to and from work and home. Some people file bankruptcy with their vehicle loans already in default. When it comes to preventing repossession during bankruptcy, what is the best advice?
Our goal is to inform our clients about all aspects of bankruptcy. Having the correct information helps individuals to make educated decisions while avoiding potentially harmful information. There are a lot of misunderstandings about Texas repossession law. Any property encumbered by loans, like automobiles, furniture, and appliances, may be subject to repossession by a creditor if you default on your payments. If you are late or otherwise default on your loan contract, repossession may occur without warning.
If you fall behind on payments on your car or other collateral, the first step is to contact your creditor. The creditor is not required to cooperate with you, even if it’s only a temporary problem. If they do, be careful to have any arrangement in writing, as creditors may still seize your property after accepting partial payment.
From our office in Arlington, we serve clients throughout Tarrant County, Dallas County, Parker County, Denton County, Wise County, Dallas, Fort Worth, Irving, Grand Prairie, Bedford, Keller, Euless, Richland Hills, North Richland Hills, Mansfield, Coppell, Kennedale, Las Colinas, Burleson, Azle, Saginaw, Haltom City, Watauga, Southlake, Benbrook, Colleyville, Grapevine, Crowley, Aledo, Roanoke, Trophy Club, Carrollton, Farmers Branch, Richardson, and Hurst, as well as other communities across North Texas.
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