Texas residents may file for personal bankruptcy as either a Chapter 7 or a Chapter 11 petition. When considering a bankruptcy filing, it may help to understand some of the differences between the two petitions.
Individuals experiencing a sudden job loss or a significant decrease in income may need to discharge all their debts through a Chapter 7 filing. When an individual has steady earnings but faces overwhelming obligations, a Chapter 13 bankruptcy may result in a manageable monthly payment arrangement.
Chapter 7 bankruptcy basics
A Chapter 7 bankruptcy generally eliminates household consumer debt when an individual does not have many assets. A petition may include a debtor’s credit cards, personal loans and medical bills. After filing, the bankruptcy court may liquidate the petitioner’s assets and use the proceeds to pay creditors.
As noted by Bankrate, an individual may keep property and assets that fall within the federal exemption allowances. In Texas, a residential home, a car necessary for work and certain personal belongings may qualify as exempt.
Chapter 13 bankruptcy basics
When the financial burden appears temporary, a Chapter 13 filing may help by restructuring an individual’s budget. The bankruptcy trustee generally reviews a petitioner’s debts and income to determine an affordable payment plan. The payment schedule may last up to five years.
According to the Federal Reserve, household consumer debts incurred through credit cards reached nearly one-trillion dollars by the spring of 2020. For many households, this is in addition to secured debts such as mortgages and vehicle loans.
When an individual or family is in need of relief from an overwhelming debt load, a bankruptcy petition may help provide a fresh start. Once filed, creditors may no longer attempt to collect from a debtor.