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Chapter 13 allows for repayment of debts over time

Bankruptcy may be an effective option to eliminate debts or make them more manageable for people in Texas. Individuals typically file for bankruptcy protection under Chapter 7 or Chapter 13. While Chapter 7 is sometimes called liquidation bankruptcy, Chapter 13 is often referred to as wage-earners or repayment bankruptcy. In a Chapter 13 bankruptcy, the trustee approves and supervises repayment of debts on a plan that lasts between three and five years.

Chapter 13 might be a good option for individual filers whose incomes exceed the means test for Chapter 7 or who wish to keep the assets they have. In a Chapter 13 plan, the debtor typically is allowed to keep his or her home and other assets while making payments on terms that are manageable. Chapter 7 petitioners are also allowed to keep some assets, but they might also have to liquidate assets to pay debts.

In a Chapter 13, all of the petitioner's disposable income, other than some for court-approved expenses, is applied toward paying down debts. Technically, during the term of repayment, the debtor's income belongs to the bankruptcy court and the trustee distributes it on the debtor's behalf. If the person's financial position changes during the bankruptcy, he or she may have to seek new terms to ensure that the obligations of the plan are met.

Alimony, child support and taxes are first in priority for repayment. These are followed by mortgages and other secured debts, with unsecured debts getting last priority. People in Texas who are struggling to pay their debts might want to meet with a lawyer. A lawyer who practices bankruptcy law might be able to help by examining and organizing the client's finances or by drafting and filing a petition for bankruptcy protection. A lawyer might help develop a Chapter 13 bankruptcy plan that fits the client's circumstances and meets the requirements of the court.

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