If you are struggling with overwhelming debt in McKinney, Texas, bankruptcy may offer a pathway to regain control of your finances. Many individuals face financial hardship due to unexpected events such as medical emergencies, job loss, or divorce. In these situations, bankruptcy can provide a fresh start. However, filing for bankruptcy is a significant decision and should not be taken lightly.
As an experienced bankruptcy attorney and co-founder of Warren & Migliaccio, L.L.P., I have helped thousands of clients through the bankruptcy process, including both Chapter 7 and Chapter 13 filings. If you are considering bankruptcy in McKinney, you need an attorney who can guide you through the complexities of the law and help you make the right choice for your financial future.
In this blog, I will explain the differences between Chapter 7 and Chapter 13 bankruptcy, discuss how bankruptcy works, and provide you with information about how our team at Warren & Migliaccio, L.L.P. can help you through the process. Remember, you can always contact our office for a free consultation. Call us at 888-584-9614 to schedule a time to speak with us.
What is Bankruptcy?
Bankruptcy is a legal process that helps individuals or businesses who can no longer pay their debts to either eliminate or repay their debts under the protection of the bankruptcy court. There are several different types of bankruptcy, but the two most common for individuals are Chapter 7 and Chapter 13 bankruptcy. The choice between these two chapters largely depends on your income, the type of debt you have, and your long-term financial goals.
Chapter 7 Bankruptcy: Liquidation for a Fresh Start
Chapter 7 bankruptcy, also known as “liquidation bankruptcy,” is the most common type of personal bankruptcy. When you file for Chapter 7, the court will appoint a trustee to review your assets and determine whether any of them can be liquidated (sold) to repay your creditors. In exchange for discharging your unsecured debts, you may have to surrender certain non-exempt assets.
One of the main advantages of Chapter 7 bankruptcy is that it offers a relatively quick resolution. For many filers, the process is completed in about three to six months, and it results in the discharge of most unsecured debts, including credit card debt, medical bills, and personal loans. Chapter 7 can provide a fresh financial start, but it’s important to understand its implications.
Eligibility for Chapter 7 Bankruptcy
Not everyone is eligible for Chapter 7 bankruptcy. To qualify, you must pass what is called the means test. The means test compares your income to the median income for a household of your size in Texas. If your income is below the median, you can file for Chapter 7. If your income exceeds the median, you may still be eligible, but the court will consider your expenses and debts to determine if Chapter 7 is appropriate for you.
Additionally, if you have significant non-exempt assets or if you have filed for bankruptcy in the past, you may be required to look into other options, such as Chapter 13.
What Debts Can Be Discharged in Chapter 7?
Chapter 7 bankruptcy can discharge many types of unsecured debts, including:
- Credit card debt
- Medical bills
- Personal loans
- Utility bills
However, there are some debts that cannot be discharged through Chapter 7, including:
- Child support and spousal support (alimony)
- Student loans (in most cases)
- Certain taxes
- Debts arising from fraud or illegal activities
While Chapter 7 offers the benefit of quickly eliminating debt, it may not be the right choice for individuals who have significant assets they want to protect, such as real estate or high-value personal property.
Chapter 13 Bankruptcy: Repayment Plan for Long-Term Relief
Chapter 13 bankruptcy is often referred to as a “wage earner’s plan” because it is designed for individuals with regular income who can repay at least a portion of their debts over time. Unlike Chapter 7, Chapter 13 does not involve liquidating assets. Instead, you propose a repayment plan to the court, which typically lasts three to five years, depending on your income and the amount of debt you have.
In Chapter 13, you make monthly payments to a bankruptcy trustee, who then distributes the funds to your creditors. The amount you pay each month depends on your disposable income, which is calculated after accounting for necessary living expenses. At the end of the repayment plan, any remaining eligible debt is discharged.
Eligibility for Chapter 13 Bankruptcy
Chapter 13 bankruptcy is available to individuals with a regular income, including self-employed individuals, contractors, and business owners. There are limits on the amount of debt you can have to qualify for Chapter 13. As of 2023, individuals can file for Chapter 13 if they have less than $2.75 million in total debt. This includes both secured debts (such as mortgages) and unsecured debts (like credit card bills).
Unlike Chapter 7, there is no means test for Chapter 13 eligibility. If you have significant disposable income, Chapter 13 may be a better option if you want to keep your assets and repay your creditors over time.
Advantages of Chapter 13 Bankruptcy
- Asset protection: Since Chapter 13 involves a repayment plan rather than asset liquidation, it is a good choice for individuals who have valuable property they want to keep, such as a home or car.
- Debt restructuring: Chapter 13 allows you to restructure secured debts (like your mortgage or car loan). You can get caught up on overdue payments while continuing to make manageable monthly payments.
- Discharge of remaining debt: At the end of the repayment plan, any remaining unsecured debt is discharged, offering you a fresh start.
Disadvantages of Chapter 13 Bankruptcy
- Longer process: Chapter 13 takes longer to complete than Chapter 7, often three to five years. It can be difficult for some people to commit to such a long repayment period.
- Required monthly payments: You must be able to make the required monthly payments as per the repayment plan. If your financial situation changes, it could make it harder to complete the plan.
How Do You Choose Between Chapter 7 and Chapter 13?
The choice between Chapter 7 and Chapter 13 bankruptcy depends on several factors, including your income, the type and amount of debt you have, and your assets. In general, if you have little to no assets and your income is below the median for your household size, Chapter 7 may be the best option. It provides a quick discharge of debt and does not require a repayment plan.
On the other hand, if you have significant assets you want to keep or if you have a regular income but cannot afford to pay all of your debts immediately, Chapter 13 may be more suitable. It allows you to repay a portion of your debt over time while protecting your assets.
How Can Our Firm Help You?
At Warren & Migliaccio, L.L.P., we understand that filing for bankruptcy is a major decision. Our team has helped thousands of clients in McKinney and surrounding areas navigate the bankruptcy process with confidence. We can help you determine which chapter of bankruptcy is right for you, guide you through the filing process, and help you protect your rights and assets.
We offer free consultations, so you have nothing to lose by getting the advice you need. Whether you are filing for Chapter 7 or Chapter 13 bankruptcy, we are here to support you every step of the way.
A Quick Reference Chart
| Aspect | Chapter 7 | Chapter 13 |
|---|---|---|
| Eligibility | Means test based on income | Must have regular income and less than $2.75 million in debt |
| Process Time | 3 to 6 months | 3 to 5 years |
| Debt Discharge | Discharges most unsecured debt | Discharges remaining debt after repayment plan |
| Asset Liquidation | Possible loss of non-exempt assets | No asset liquidation, protects property |
| Monthly Payments | No monthly payments | Requires monthly payments to trustee |
| Ideal For | Individuals with little to no assets and income below median | Individuals with regular income who need time to repay debt |
Contact Us for a Free Consultation
If you are considering filing for bankruptcy in McKinney, Texas, don’t navigate the process alone. Warren & Migliaccio, L.L.P. is here to help you understand your options and choose the best path forward. Our experienced attorneys will guide you through Chapter 7 or Chapter 13 bankruptcy and work to achieve the best possible outcome for your financial future.
