When Is It Better To Reorganize Than To Discharge Debt?
If you’re a consumer looking for a fresh financial start under U.S. bankruptcy law, you have two basic options: discharge debt through Chapter 7 or reorganize debt under Chapter 13. With Chapter 7, you’ll have no further obligation to your creditors, and with Chapter 13, you’ll simply make new payment arrangements, often with a waiver of late fees and penalties.
Not everyone can discharge debt by filing under Chapter 7—you must qualify to file under Chapter 7 by submitting to a means test. But suppose you meet the requirements to file for protection under Chapter 7… is there any reason you might opt instead to reorganize your debt through Chapter 13?
How Does Chapter 7 Work?
Chapter 7 is a relatively straightforward process. A debtor is allowed to permanently discharge certain types of debt in exchange for the relinquishment of non-exempt assets, which are sold to help pay off creditors. Debts that cannot be discharged include child support and some other family law obligations, student loan payments (with very limited exceptions), and most tax arrearages. Property exemptions are available under either federal or state law.
Why Might Chapter 13 Be Preferable?
In most states, the primary reason for choosing Chapter 13 over Chapter 7 is to protect your property. With Chapter 13, you’re simply renegotiating your payments to creditors, so there’s no requirement that you give up any property. That can make Chapter 13 the preferred approach for people who want to keep assets.
In Texas, however, debtors are allowed extremely generous exemptions for both real and personal property in Chapter 7 proceedings. In fact, most Chapter 7 filings in Texas involve no loss of property at all. Accordingly, in Texas, you typically won’t need to file under Chapter 13 in order to keep your property.
Contact an Experienced Rockwall, TX, Bankruptcy Attorney
Let us help you take the right steps and make good decisions when filing for personal bankruptcy protection. At the Law Offices of Carrie Weir, all potential clients are entitled to a free initial consultation. To arrange an appointment, contact my office online or call 972-772-3083. I handle Texas personal bankruptcy filings in Kaufman County, Rockwall County, Collin County, Dallas County, Hunt County, and the surrounding counties.
