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10 Things You Should Know About Chapter 7 and 13 Bankruptcy

Bankruptcy helps resolve debts in an organized and legal manner.  More people feel comfortable taking advantage of their legal rights under bankruptcy, although they may be confused about the differences between Chapter 7 and Chapter 13.


Here are 10 basic essentials to know about personal (non-business) bankruptcy:


  1. Most individuals who need bankruptcy protection will file either under Chapter 7 or Chapter 13.


  • Chapter 7 is a liquidation of assets, requiring the sale of most of an individual’s property with the proceeds used to pay creditors.
  • Chapter 13 is a reorganization of debt by which an individual develops a plan for paying creditors over a three- to five-year period.


  1. A bankruptcy under Chapter 7 or Chapter 13 will remain on your credit record for up to ten years. Some creditors will report a Chapter 13 bankruptcy for only seven years.


  1. People who have been laid off or who are otherwise unemployed typically use Chapter 7.


  1. You must pass a means test to be eligible to file for bankruptcy under Chapter 7. If your income is more than the median income in Texas, you may not qualify.


  1. Some personal property is exempt from a forced sale under Chapter 7, meaning you do not have to sell it as part of your liquidation. Exempt property includes:


  • Your primary home
  • Your primary motor vehicle
  • Food and clothing
  • Health savings accounts and medical devices such as wheelchairs and hearing aids
  • Burial plots
  • Home furnishings, including family heirlooms
  • Up to two firearms
  • Bibles or other books containing sacred religious writings
  • Athletic and sporting equipment, including bicycles


  1. Following a Chapter 7 liquidation, most remaining debt is discharged, i.e., you are no longer legally required to repay that debt. But certain debts, such as taxes, student loans and child support, are not discharged and still must be repaid.


  1. Chapter 13 reorganization relies on an individual having income that can be used to pay debts.


  1. An individual is eligible for a Chapter 13 filing if their unsecured debts are less than $394,725 and secured debts are less than $1,184,200 (through April 2019). These amounts are adjusted periodically. The same eligibility applies if the individual is self-employed or operating an unincorporated business.


  1. Under Chapter 13, to keep assets from being sold you must pay creditors an amount equal to or greater than the value of your non-exempt property (property that would be sold under Chapter 7 liquidation).


  1. Although an individual repays debts under Chapter 13, he or she may be allowed to pay less than the full amount of some debts.


If you are having trouble paying your debts, bankruptcy may be the best option for your situation.   The Westbrook Law Firm can help.  Contact us today to discuss your situation and determine if bankruptcy can help.