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Bankruptcy options: Chapter 7 and Chapter 13

When people in Texas face overwhelming debt and are no longer able to make ends meet, they may look for options to find some relief from pending credit card debts, medical bills and other looming obligations. Personal bankruptcy can be an important choice that allows people to move forward to a new financial future. When people file for bankruptcy, they can do so in two forms: Chapter 7 and Chapter 13. There are several reasons why people may choose one or the other.

Chapter 7 bankruptcy is based on liquidation of assets. A bankruptcy trustee directs the selling off of all property deemed non-exempt, and the funds received will go to pay off outstanding debts. The remainder of eligible debt would be discharged by the bankruptcy court. The process is relatively short and is often completed in four to six months. In order to file under Chapter 7, people must pass a means test that compares their income to the median income for others of the same family size in the state. If they make too much to be eligible for Chapter 7, they must turn to Chapter 13.

On the other hand, Chapter 13 bankruptcy can take a substantially longer period of time. It allows people to retain assets that would otherwise be sold off under Chapter 7. Instead, the bankruptcy trustee creates a three-year or five-year repayment plan for a filer to pay down their debts. During this period, the person must maintain on-time payments for regular bills as well as the repayment plan.

Bankruptcy can't erase all forms of debt; student loans, child support and back taxes are well-known exemptions, but it can be critical in providing debt relief to struggling people. A bankruptcy attorney can provide advice and guidance about the types of bankruptcy available and how people can move forward.

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