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Understanding The Differences Between Chapter 7 and Chapter 13 Bankruptcy

Like other mistakes in our lives, poor financial decisions should not affect us forever. Whether you made a bad investment, experienced a financial emergency or simply overextended yourself, bankruptcy can give you a new financial beginning.

Two of the most common forms of personal bankruptcy are Chapter 7 and Chapter 13, and there are important differences. The legal team at The Sparrow Law Firm can support you through either type of bankruptcy.

Chapter 7 (Liquidation) Bankruptcy

This most common type of bankruptcy. Unsecured debts (including credit cards and medical and personal loans) can be liquidated. Most debts can be discharged.

A bankruptcy trustee will determine what can be liquidated, sell assets and pay creditors. There are restrictions on discharging alimony, child support, federal student loans, income taxes and (some) government debts.

The debtor can protect:

  • Health aids
  • Your homestead
  • Insurance
  • Pensions
  • Personal injury settlements
  • Personal property
  • Property that is part of a business partnership
  • Vehicle
  • Wrongful death lawsuit settlement funds

Chapter 13 (Wage-Earners Bankruptcy Or Reorganization)

This type of bankruptcy is available only to individuals. It is reorganization of debts, and it is used by many people behind on house or car payments and want to avoid foreclosure or repossession. It protects your assets while your case is going through the bankruptcy process.

It uses a repayment plan and allows debtors to repay part of their debt over three to five years. 

The Means Test

The Means Test will determine if you qualify for a Chapter 7 bankruptcy or a three-year Chapter 13 bankruptcy. It establishes the median household income (depending on how many people live in the residence). People whose income is above the limits could still qualify for Chapter 7 or Chapter 13, depending on household expense limits for their home county. Our firm can help you understand and apply the Means Test to your financial situation.

Experienced Legal Help Can Help You Avoid Problems

When you file bankruptcy, creditors must stop calling. It can prevent lawsuits, judgments and foreclosures. The filing process can be complicated; good legal counsel is essential. Call our office in Houston at 281-770-3231 or email us.