As a bankruptcy attorney in Dallas, I get a lot of questions about the difference between Chapter 7 and Chapter 13 bankruptcy. Many people ask me about the changes in the bankruptcy laws and how they will affect their debt relief options.

Although some people may not qualify for Chapter 7 bankruptcy, Chapter 13 can provide many people the debt relief they need. The problem is most people don’t know enough about the process to understand how Chapter 13 can benefit them. I feel it is important that all potential bankruptcy clients know the following about Chapter 13 bankruptcy:

Differences In Debt Types

When filing for bankruptcy, people come into the process with two main types of debts. Secured debts, such as mortgages and cars, and unsecured debts, such as credit cards and medical bills. The difference between a Chapter 7 bankruptcy and Chapter 13 bankruptcy, is the level to which debts are able to be resolved.

In a Chapter 13 bankruptcy, unsecured debts may be settled for less than the actual amount owed. A client may be able to negotiate a lowered repayment amount anywhere between 1-100% of the amount owed for their credit cards, utility bills and medical bills. However, all secured debts must be repaid in full. In other words, the mortgage loan and car loan must be repaid 100% if the client wants to keep the property.  Unpaid tax debts and back due child or spousal support payments are also required to be repaid in full in a Chapter 13 bankruptcy.

Costs of Chapter 13

There is really only one drawback to Chapter 13, which is needing a sufficient income to repay the debts. Since the changing of bankruptcy laws, it is more difficult for some to qualify for Chapter 7 bankruptcy, leaving them with Chapter 13 as their only option. However, just because someone has enough income to disqualify them for Chapter 7 on paper, doesn’t always mean they have enough income to repay their debts.

Benefits Of Chapter 13

Unlike a Chapter 7 bankruptcy where debts are typically eliminated with little to no cost to the debtor, a Chapter 13 bankruptcy will result in the debts being satisfied with the creditors. Most people will be able to retain a better credit standing with a Chapter 13 bankruptcy, than if they seek Chapter 7 protection. This is  not a guarantee, but is generally the result in most cases.

Chapter 13 also provides better asset protection from liquidation by creditors. Since a debtor is repaying their debts, they will be able to retain possession of the property and be given ownership over the asset once the debt is satisfied.

The bankruptcy process can be quite complex, which is why I always recommend seeking the advice of an experienced bankruptcy attorney before choosing to file for bankruptcy.