Chapter 7 vs. Chapter 13 Bankruptcy in Texas
Understanding Which Type of Bankruptcy Best Fits Your Situation
If you are facing financial trouble and considering bankruptcy, you will need to decide whether you are going to file for Chapter 7 or Chapter 13 Bankruptcy. In most cases, if people can meet the financial requirements to file Chapter 7 that is the best option, as (generally speaking) Chapter 7 eliminates debt and Chapter 13 restructures debt.
Chapter 13 Restructures Debt. This can be very helpful if you are behind on the mortgage of a house or the loan of a car that you wish to keep. Chapter 13 is an effective tool in re-organizing your debt. There may be a case where someone may qualify financially for Chapter 7 but chooses to file for Chapter 13 instead. Generally speaking, if you can qualify for Chapter 7, you will likely be better off filing for Chapter 7.
Do I Qualify for Chapter 7 Bankruptcy?
To qualify for Chapter 7 bankruptcy, you must pass what is called “The Means Test”. The Means test compares your household income to the median income in Texas. Here are the numbers currently being used. However, there are some exemptions available from this amount, so even if your income is slightly over the limit, we may still be able to get you qualified.
| Household Size | Monthly Income | Annual Income |
| 1 | $4,241.83 | $50,902.00 |
| 2 | $5,574.92 | $66,899.00 |
| 3 | $6,162.33 | $73,948.00 |
| 4 | $7,188.25 | $86,259.00 |
| 5 | $8,688.25 | $104,259.00 |
| 6 | $9,438.25 | $113,259.00 |
How Chapter 7 Bankruptcy is Different from Chapter 13 Bankruptcy
Chapter 7 will "discharge" or eliminate your outstanding unsecured debts. Chapter 13 essentially reorganizes and prioritizes your debts, while the bankruptcy trustee manages your monthly repayment plan for a period of 3 to 5 years.
Chapter 7 Bankruptcy – Keeping Your House
If you want to keep your home while filing for bankruptcy in Texas, you may be able to keep it. If the equity in the home does not exceed a certain amount, you should be able to keep your home when filing a Chapter 7.
Chapter 7 Bankruptcy – Keeping Your Car
Like your home, if you want to keep your car, you might be able to. If you want to use bankruptcy to get out from under a car loan with a high interest rate or the loan is higher than the value of the car, we can discuss how to surrender the car and work towards discharging the loan. You may be asked to sign a “reaffirmation agreement” basically saying that you will continue to make payments on the car.
Chapter 13 Keeping Your Home and Car
You might be able to keep your home and car under Chapter 13 as well. The added benefit under Chapter 13 is that in some cases you can work secured debt into the plan. So if you are behind on your auto or mortgage payment, Chapter 13 can help you get caught up.