Texas residents who wish to escape overwhelming debt may be unfamiliar with the differences between a Chapter 7 and a Chapter 13 bankruptcy. Those who file Chapter 13 bankruptcies make payments for three or five years to pay down all or part of their debts, but debtors who file successful Chapter 7 petitions make no further restitution and see some or all of their debts discharged. This can make Chapter 7 bankruptcies seem far more attractive, but qualifying for a Chapter 7 petition can be difficult.
This is because the eligibility requirements for filing a Chapter 7 petition were changed when the bankruptcy laws were modified extensively in 2005. This kind of debt relief is now reserved for individuals who can pass a means test that takes their income and expenses into account to determine whether or not they are able to make monthly payments to pay down their debt. For this reason, Chapter 7 bankruptcies are generally filed by debtors who are unemployed, destitute or struggling to make ends meet on extremely limited incomes.
Individuals who could qualify for a Chapter 7 bankruptcy sometimes choose to file Chapter 13 petitions because they own homes or other assets that they wish to protect. However, those who pursue Chapter 7 bankruptcies may also protect assets like cars that they are still making payments on by not including these debts in their bankruptcy filings. Non-exempt assets that they own free and clear could be sold and the money recovered sent to their creditors.
Individuals with overwhelming debts sometimes delay pursuing Chapter 7 bankruptcy because they fear that all of their possessions will be sold and they will be left with nothing. Attorneys with debt relief experience could explain that this is highly unlikely unless the assets involved have significant worth. Attorneys could also point out that the bankruptcy laws include exceptions for assets like automobiles because they were written to provide second chances and not punish individuals who may have made poor decisions.