How to Decide Between Chapter 7 and Chapter 13 Bankruptcy

 Posted on June 02, 2022 in Bankruptcy

It is all too easy for debts to become unmanageable. While large debts are often seen as a failure or a sign of irresponsibility, the truth is that this issue most commonly affects people due to no fault of their own. An unexpected illness or a serious injury can result in massive medical expenses, and it can also affect a person's ability to work, leading to increasing bills and difficulty covering basic living expenses. Issues such as the loss of a job or a divorce can also lead to unexpected expenses and problems covering the costs of living. 

In these situations, bankruptcy may be the best option for getting rid of debts and returning to a position of financial stability. However, many people who are considering bankruptcy are unsure about whether they should file under Chapter 7 or Chapter 13. By answering the following questions, you can determine which option would be best for you.

Does Your Family Make More Than the Average Income?

Chapter 7 bankruptcy, which is sometimes referred to as “straight” bankruptcy, may be the best option. It can usually be completed within a few months, and it will allow for the discharge of most or all of your debts, meaning that they will be completely eliminated. However, to qualify for Chapter 7, you will need to pass a “means test.” The first part of this test examines your income. If you make less than the median income in your state for your family size, you will qualify. For example, if you live in Texas, are married, and have two children, you will need to make less than $93,386, which is the median income for a family of four in 2022.

Do You Have Secured Debts?

The type of debts you have may also be a significant factor to consider when choosing the type of bankruptcy to pursue. Chapter 7 will eliminate the requirement to repay the amount you owe to creditors. However, if you have secured debts, such as a home mortgage or auto loan, creditors will have a lien on the property, and they can pursue a foreclosure or repossession if you do not pay what is owed. If you want to avoid this, you may want to reaffirm these debts rather than eliminating them through Chapter 7. By using Chapter 7 to discharge other debts, you may be able to afford to make payments on these loans and avoid losing your property.

You may also choose to pursue a Chapter 13 bankruptcy, which will allow you to consolidate debts (including any past-due amounts on secured debts) into a single repayment plan, which will last for several years. Chapter 13 will allow for unsecured debts to be discharged once the repayment plan has been completed, and you will then be more likely to maintain financial stability, and you can continue paying your secured debts.

Contact Our San Antonio Debt Relief Lawyer

If you are not sure about the best ways to address the debts you owe, the Law Offices of Chance M. McGhee can evaluate your debts and overall finances and help you determine the type of bankruptcy that will best fit your situation. We will work closely with you to gather the proper financial records and other required information and file the correct forms, and we will guide you through the bankruptcy process and help you get on the right track to financial success. Contact our New Braunfels Chapter 7 and Chapter 13 bankruptcy attorney at 210-342-3400 to set up your free, confidential consultation.

Sources:

https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics

https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics

https://www.justice.gov/ust/eo/bapcpa/20220515/bci_data/median_income_table.htm