When you’re in over your head with personal debt, you might consider filing for bankruptcy—but what kind should you file for? Chapter 7 and Chapter 13 bankruptcy both help you get out from under your debt, but they do so in very different ways. Chapter 7 and Chapter 13 have different impacts on your credit and assets, and apply to different kinds of debt.
You should also be aware that neither option allows you to discharge child support, alimony and certain kinds of tax debt.
Chapter 7 Pros and Cons
Chapter 7 bankruptcy in Montgomery County, TX is for folks who have debt—often personal consumer and medical debt—and no real way to pay it back. Chapter 7 filings require that you meet certain standards for disposable income. This is partially determined by whether your income is lower than the state’s median income, but factors such as family size and household expenses also play a role.
Chapter 7 gets rid of those debts so you’ll never have to pay them again. It also stops creditors from taking action against you, such as contacting you, collecting money from you or garnishing your wages. Creditors won’t be allowed to start or proceed with lawsuits against you or your property. It’s also faster—a Chapter 7 proceeding takes about 90 to 100 days to complete.
The problem with a Chapter 7 filing is that you could lose assets, both cash and property. Your credit could also take a major hit for up to 10 years. You’ll likely still be able to get credit cards and loans, but with far higher fees.
Chapter 13 Pros and Cons
Chapter 13 bankruptcy is designed for those whose income is too great to file for Chapter 7, or those who want to hang on to their assets.
Chapter 13 bankruptcy proceedings can stop debt collectors and foreclosure proceedings from acting against you, and it gives you a three- to five-year window to pay your creditors back. You’ll be on a strict budget, monitored by the court, which will help you catch up on your payments. This can be on a consolidated monthly plan, so you’ll pay just one payment for all of your creditors. Unlike Chapter 7 bankruptcy, your credit won’t take as large of a hit, and it will stay on your credit report for just seven years instead of 10.
The downside to Chapter 13 bankruptcy, besides taking three to five years to resolve, is that you must pledge your disposable income—all of it—to paying back your debt. If your income varies, that can be a real problem. If you fail to pay, you risk being converted to a Chapter 7 filing, or losing your assets.
We always recommend contacting a bankruptcy lawyer to help guide you through the process. Their expert knowledge may find options or drawbacks that you hadn’t considered.
When you’re considering Chapter 13 or Chapter 7 bankruptcy in Montgomery County, TX and need a bankruptcy lawyer, contact James R. Jones, Attorney at Law to set up a consultation.