Someone may choose Chapter 13 even when they qualify for Chapter 7 because it lets them keep the house, the car, and other assets and repays part of the debt through a plan lasting three to five years.
If you are from Garland, Texas, a Dallas County city, the case is filed in the U.S. Bankruptcy Court for the Northern District of Texas, Dallas Division, since Garland comes under Dallas County.
Have a local Garland Bankruptcy Law Firm; they can help you understand your options and guide you in picking the right chapter for your case.
In this article, you’ll see the key differences between the two chapters and why some people find Chapter 13 the better option. Keep reading to get an idea so you can decide what suits you.
Difference between Chapter 7 & Chapter 13
What Chapter 7 is
Chapter 7 is a liquidation bankruptcy. Qualifying debts like credit cards and medical bills are discharged, usually within four to six months. To qualify, your income must be below your state’s median, or you must pass the means test. Anything not covered by exemptions can be sold by the trustee to pay creditors.
In Texas, these exemptions are listed under Texas Property Code § 41.001 for the home and § 42.001 for personal property.
What Chapter 13 is
Chapter 13 is more of a reorganization. You propose a plan, the court approves it, and you pay what you can afford every month for three to five years. Whatever is left at the end may be discharged. You need a regular income, and your debts must fall under the set limits.
Key Reasons Someone Chooses Chapter 13 Over Chapter 7
- The house is under foreclosure threat
In Chapter 7, the foreclosure is only delayed for a few months, and the lender comes back if the mortgage is still unpaid. Chapter 13 works differently. The missed installments are added into the plan and paid off slowly over three to five years, while you keep paying the regular monthly mortgage.
→ Here, the lender must stop foreclosure as long as the plan is followed. - Property above the exemption limit
Every state has exemption limits. If your car, a second property, or savings cross that limit, the Chapter 7 trustee can sell the extra part. Under Chapter 13, nothing is sold, and you only pay creditors an amount equal to what that property is worth. - A pending claim or settlement
Suppose you are filing a car accident claim in, say, Texas. That expected money may be counted as an asset, and a Chapter 7 trustee can go after it. Chapter 13 lets you keep the claim, but creditors may get paid a little more through the plan. - A cosigner is involved
When someone has cosigned your loan, Chapter 13 usually stops creditors from chasing that person while the plan runs. Chapter 7 gives no such cover, so the cosigner may get the collection calls. - Debts that survive Chapter 7
Back taxes and support arrears are not wiped out in Chapter 7. In Chapter 13, they go into one fixed monthly payment.
- Chapter 13 is considered workable because the payment is set according to your budget. The court also reviews the plan, so the numbers must be realistic.
Who Chapter 13 Suits Better
It tends to fit people who have steady income, are behind on a mortgage, own assets they want to keep, or earn slightly above the Chapter 7 limit.
Points Worth Keeping in Mind
- Choosing Chapter 13 can help you slowly pay mortgage arrears and keep your home.
- People, even if qualified for Chapter 7, go for Chapter 13 because Chapter 13 will protect any property above the exemption limit, but Chapter 7 will not.
- Another key reason people go for Chapter 13 is that cosigners and back taxes are handled better in Chapter 13.
- Always keep in mind to choose Chapter 13 only if you can afford to pay every month for three to five years.
