Chapter 13 vs Chapter 7 Bankruptcy
A Chapter 7 bankruptcy can provide relief from credit collection efforts while the court determines whether or not your debts will be discharged. If the bankruptcy court grants you a discharge, your debts are canceled and you are no longer obligated to pay your creditors. However, Chapter 7 bankruptcy is typically designated for individuals who cannot afford to make payments on their debts. To qualify for Chapter 7 bankruptcy, you must pass a means test, which determines whether your debts exceed your income by a sufficient amount to prevent you from repaying them. If you file for Chapter 7 bankruptcy but are not eligible, you may be able to file for Chapter 13 bankruptcy instead. Chapter 13 reorganizes your debts and develops and presents a repayment plan to your creditors. If the bankruptcy court authorizes your repayment plan, you will have more time to repay your creditors. You will have three to five years to repay your debts under a Chapter 13 plan, allowing for more manageable payment terms.
Positive aspects of Chapter 13 Bankruptcy
As you will be repaying your debts rather than having them eliminated, a Chapter 13 bankruptcy will appear more favorable on your credit report. Potential lenders will be more likely to grant you a loan if it can be demonstrated that you repaid your debts and did not simply abandon them. Your debts are your responsibility, and the fact that you have attempted to repay them, even through Chapter 13 bankruptcy, will portray you favorably.
A Chapter 13 bankruptcy is more effective at protecting your assets than a Chapter 7 bankruptcy, in which there is no assurance that your assets will be protected from liquidation by creditors. Texas is one of the states that exempts some of your personal property from liquidation during bankruptcy; however, there are limits on how much and what types of assets are protected. Due to the fact that you are repaying your debts in Chapter 13, your assets will be safe from liquidation and will remain in your possession once the Chapter 13 repayment plan has been completed.
Some debts, such as tax arrears and student loans, cannot be discharged in a Chapter 7 bankruptcy under bankruptcy law. A Chapter 13 can allow you to repay these debts as part of your repayment plan, granting you debt relief while protecting you from potential legal action.
A Chapter 13 bankruptcy may be advantageous for someone with co-signed loan debts. If you file for Chapter 7 protection with a co-signed loan and receive a debt discharge, the co-signer has not been granted the same discharge and can be held solely liable for loan repayment by the creditor. Filing for Chapter 13 bankruptcy with a co-signed loan will shield the co-signer from creditors and liability during loan repayment.""
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