There are several situations where a Chapter 13 is preferable to a Chapter 7. A Chapter 13 bankruptcy is the only choice if you are behind on your mortgage or business payments and you want to keep your property, either in Texas or another state, at the end of the bankruptcy process. A chapter 13 bankruptcy allows you to make up their overdue payments over time and to reinstate the original mortgage agreement. In general, if you have valuable property not covered by your Texas bankruptcy exemptions that you want to keep, a chapter 13 filing may be a better option. Also, people file Chapter 13 bankruptcy because they have too much income to file a Chapter 7 bankruptcy or have the kind of debt that is non- dischargeable in a Chapter 7 (e.g. certain taxes).
However, for the vast majority of Texas residents who simply want to eliminate their heavy debt burden without paying any of it back, Chapter 7 provides the most attractive choice.
For a more on the two types of bankruptcy see:
- Texas Chapter 7 Bankruptcy
- Texas Chapter 13 Bankruptcy
A quick overview of the advantages and disadvantages of a the two types of bankruptcy:
Advantages to a Texas Chapter 7 filing:
- You receive a complete fresh start. After the bankruptcy is discharged the only debts you owe will be for secured assets on which you choose to sign a “Reaffirmation Agreement.”
- You have immediate protection against creditor’s collection efforts and wage garnishment on the date of filing.
- Wages you earn and property you acquire (except for inheritances) after the bankruptcy filing date are yours, not the creditors or bankruptcy court.
- There is no minimum amount of debt required.
- Your case is often over and completely discharged in about 3-6 months.
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Disadvantages to a Texas Chapter 7 filing:
- You lose your non-exempt property which is sold by the trustee. If you want to keep a secured asset, such as a car or home, and it is not completely covered by your Texas bankruptcy exemptions then Chapter 7 is not an option.
- If facing foreclosure on your home, the automatic stay created by your Chapter 7 filing only serves as a temporary defense against foreclosure.
- Co-signors of a loan can be stuck with your debt unless they also file for bankruptcy protection.
- If you filed a prior case and received a discharge of your debts, you can only file a second Chapter 7 bankruptcy case eight years after you filed the first case.
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Advantages to a Texas Chapter 13 payment plan:
- If you choose and you can afford the payment plan, you can keep all your property, exempt and non-exempt.
- While debts are not canceled as in a Chapter 7 discharge they can be reduced under a Chapter 13 payment plan.
- You have immediate protection against creditor’s collection efforts and wage garnishment.
- More debts are considered to be dischargeable (including debt you incurred on the basis of fraud and credit card charges for luxury items immediately prior to filing).
- If the Chapter 13 plan provides for full payment, any co-signers are immune from the creditor’s efforts.
- You have protection against foreclosure on your home by your lender as long as you meet the terms of the plan.
- You have more time to pay debts that can’t be discharged by either chapter (like taxes or back child support).
- You can file a Chapter 13 at any time.
- You can file repeatedly.
- You can separate your creditors by class where different classes of creditors receive different percentages of payment. This enables you to treat debts where there is a co-debtor involved on a different basis than debts incurred on your own.
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Disadvantages to a Texas Chapter 13 payment plan:
- You create a payment plan where you use your post bankruptcy income. This ties up your cash over the Chapter 13 plan period.
- Legal fees are higher since a Chapter 13 filing is more complex.
- Your plan and therefore your debt will last for 3 to five years.
- You are involved in the bankruptcy court process for the term of the 3-5 year plan.
- Stockbrokers, and commodity brokers cannot file a Chapter 13 bankruptcy petition.
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Know Your Options: An Introduction to Bankruptcy Law
Despite recent indications of tentative growth (and plenty of optimism in the city of Buffalo), the U.S. economy has been moribund for the better part of a decade, and the regional economy has been in decline for even longer. Close to one million Americans file for bankruptcy every year. In a culture that prides itself on its work ethic, you might think that bankruptcy comes with a social stigma. Actually, while some bankruptcies result from reckless spending, most happen after an individual, a family, or a business faces something unexpected. This could be property damage, a divorce, medical expenses, a sudden economic downturn, the loss of a job, or any similar misfortunes.
Know that bankruptcy isn’t the end. You haven’t “lost,” you aren’t going to debtor’s prison, and you won’t be starting over with absolutely nothing to your name. When you face bankruptcy, you have options. Many people don’t know this, and take bankruptcy passively, as an inevitability, a penalty. This shouldn’t be your approach. If you consult with an experienced bankruptcy attorney, he or she can help you to realize your options and determine which course is best, putting you on the path to financial freedom. Keep reading our New York bankruptcy guide to learn more.
Common Bankruptcy Questions: The New York Bankruptcy Guide
The first question on your mind might be this: Should I liquidate, or reorganize? This is something you ought to discuss with your attorney. The answer to this question depends on your answers to many others. If you’re facing a bankruptcy, you should start thinking about these questions now.
>> How long will it take to complete a bankruptcy?
If you’re in a Chapter 7 bankruptcy, the entire process generally will take about four months from the date you file. If you’ve filed for Chapter 13 bankruptcy, you’ll enter a payment plan that usually lasts between three and five years. In either case, once you’ve satisfied the conditions of your bankruptcy the court will issue you a discharge, finalizing the case.
>> Do I need to hire an attorney to file a bankruptcy?
The law doesn’t require you to hire an attorney to handle your bankruptcy case, but the practical demands of your situation almost certainly do. If you file on your own and do not fully understand the law, the consequences will be harsh. You may lose property, forfeit your right to obtain a bankruptcy discharge, subject yourself to FBI prosecution for failure to provide necessary information, and set yourself further back from retaking control of your financial affairs.
>> Can I keep my car and house in a bankruptcy?
In New York State, most bankruptcy filers will have no difficulty keeping a house and car due to the exemption laws. Being uprooted from your house and losing your car could only set you back further, and seriously hurt your career or employability. More importantly, they’re essential to the safety of you and your family. An experienced bankruptcy attorney can help you take advantage of these exemptions.
>> What debts can I discharge?
When a debt is discharged, you are no longer legally obligated to pay it. Most debts are dischargeable via bankruptcy. Commonly, the filing party discharges:
- Medical debt
- Credit card balances
- Personal loans
- Vehicle deficiency debt
Certain debts are generally not dischargeable. These include:
- Student loans
- Recent taxes
- Child and spousal support
>> Does bankruptcy help with judgements?
A money judgment is a court order awarding a plaintiff in a case a sum of money. If you owe money because of a judgment, you may discharge this debt through bankruptcy. A possible exception is if you own real property. If you own a home and you have a judgment against you, that judgment forms a lien against your home – preventing you from selling or transferring the property until the lien is paid. However, in most instances if the lien is against your primary residence you may eliminate it via bankruptcy as well.
>> Can bankruptcy stop wage garnishments?
If a creditor has obtained a wage garnishment against you, this is a form of debt you can halt and then discharge through bankruptcy. Because wage garnishments are deductions from your pay, you could be losing money every week or two weeks that you wait to file bankruptcy. Talk to an experienced debt relief attorney right away.
>> What should I not do during the bankruptcy process?
Prior to filing a bankruptcy there are certain actions that could seriously set you back and hurt your financial future. Actions that may seem to be helpful could be costly. You must not:
- Transfer or give away property.
- Repay any money you owe to relatives or friends.
- Continue to incur debt if you have no intention to repay it.
These actions can have serious consequences. Be sure to talk with an attorney who can advise you about the Dos and Don’ts of navigating your bankruptcy proceedings successfully.
>> Should I file for bankruptcy jointly with my spouse?
Married couples’ biggest concern is usually deciding whether they should file a joint bankruptcy or if one spouse should file individually. The answer depends on the amount and ownership of the couple’s debt. Your attorney will gather specific information and determine the best approach for you.
>> Will I have to go before a judge?
It’s common to be nervous when filing a bankruptcy, and one of your anxieties might be about appearing before a judge. In most bankruptcy cases, there is no reason to appear before a judge. Instead, you will meet with a trustee, another lawyer the court assigns to administer the process.
In a Chapter 13 bankruptcy, most filers have to appear before a judge only one time. This isn’t a torturous process, though – the judge will put you under oath and then ask you questions about your ability to adhere to the Chapter 13 payment plan.
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Chapter 7 Bankruptcy: The New York Bankruptcy Guide
A Chapter 7 bankruptcy may be the closest you can get to a “fresh start.” Available to both individuals and corporations, Chapter 7 is the most common type of bankruptcy in the U.S.
If you file for Chapter 7 discharge, in theory the trustee will liquidate all of your assets and give the proceeds to your creditors. However, there are liberal exemptions in New York State which allow most debtors to keep all or most of their property, including your house and your car. This is a great advantage of Chapter 7 bankruptcy. Exemptions include:
- Primary residence, up to $82,775 in equity
- Vehicle equity, subject to limitation
- Insurance policies
- Pensions and retirement plans
- Clothing, furniture and other household goods
- Cash, subject to limitation
It’s important to note, though, that some debts are not dischargeable. Non-dischargeable debts include:
- Child and spousal support
- Recent Income taxes
- Student loans (except in rare cases)
>> Am I eligible for Chapter 7 bankruptcy?
Debtors who have already filed for Chapter 7 cannot file again for eight years. And debtors who have already filed for Chapter 13 bankruptcy cannot file for Chapter 7 until six years have passed (although there is an exception for this). Most importantly, debtors are subject to a “means test” which determines whether the debtor is making too much money to take advantage of Chapter 7’s ability to wipe away their debt. The only way to be sure if you are eligible for Chapter 7 bankruptcy – and if Chapter 7 bankruptcy is your best option – is to talk to an attorney. Your attorney will review your debts, assets, income, and expenses, and help you come to a decision.
>> Is Chapter 7 bankruptcy the right choice for me?
Again, you can only know this after going over the particulars of your case with an experienced bankruptcy attorney who can discuss all of your options. A good bankruptcy attorney will tell you whether bankruptcy is your best option, or if you have other possible options, such as debt settlement, or even doing nothing.
>> How do I file for Chapter 7 bankruptcy?
Once a debtor is determined to be eligible for Chapter 7 bankruptcy, the debtor will have to file the necessary documents and submit the proper fees with the bankruptcy court. The court’s filing fees are currently $335. Your attorney will ensure that all the property documents are filed, including the bankruptcy petition, a list of the debtor’s assets and debts, a list of the debtor’s current income and expenses and a summary of the debtor’s financial situation.
>> What is the role of the trustee in a Chapter 7 bankruptcy case?
In Chapter 7 bankruptcy, the court will order a trustee to manage your case. The trustee will review your paperwork for accuracy, then collect any non-exempt assets and use these to repay your creditors. In most cases, the trustee cannot collect any assets, resulting in what are called “no-asset cases”, because the law’s strong protections allow debtors to keep much of their property.
If you don’t apply your exemptions correctly, however, the trustee could take your assets. You need competent legal counsel to protect yourself through this process.
>> What is a “Meeting of Creditors”?
After filing your bankruptcy, you’ll attend a meeting of creditors; however, creditors rarely appear and the meeting takes place between you and your assigned trustee. The trustee will put you under oath and ask questions about your assets and bankruptcy papers. This takes on average about five to ten minutes once your case is called and your attorney will attend with you. You need only answer the questions truthfully as your attorney has prepared you beforehand.
Starting Over: The New York Bankruptcy Guide
The point of filing for bankruptcy, no matter the type, is to give yourself another chance at financial success without the weight of old debts you can’t afford to pay.
After your bankruptcy you’ll need to reestablish credit. You should be thinking about this, however, even before you file.
Reestablishing credit may seem like a long and daunting process. It won’t happen overnight, but it doesn’t have to be difficult.
You need some type of credit to be reported to the major credit bureaus. You should start by opening a secured credit card. This means that you will put a certain amount of money in a bank, and the bank will issue you a line of credit for that amount, usually $300-500.
You may also receive offers for unsecured credit cards – usually around $500 – with high interest rates. You can open a credit card like this and avoid the interest rates by paying your monthly balances in full. As long as you continue paying on time, you will steadily build your credit.
A car loan is another good option – again, so long as you pay on time.
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