If you are asking yourself, “Do I qualify for bankruptcy?” you are not alone. Many individuals and families in the Dallas, Texas area find themselves overwhelmed by debt and are unsure whether bankruptcy is a viable option. As a bankruptcy attorney, I can assure you that everyone qualifies for bankruptcy relief. The real question is not whether you qualify, but rather which type of bankruptcy — Chapter 7 or Chapter 13 — is the best fit for your financial situation. In this post, I am going to explain the differences and help you understand how the bankruptcy process works.
Understanding the basics of bankruptcy
Bankruptcy is a legal process designed to provide individuals and businesses with relief from overwhelming debt. It is not a sign of failure – it is a tool to help you regain control of your finances. Depending on your income, assets, and financial goals, you may qualify for either Chapter 7 or Chapter 13 bankruptcy. Each type has specific requirements and offers unique benefits.
What is Chapter 7 bankruptcy?
Chapter 7 bankruptcy is often referred to as “liquidation bankruptcy.” It is designed for individuals who have limited income and cannot afford to repay their debts. When you file for Chapter 7, a bankruptcy trustee will evaluate your assets to determine if any can be sold to pay your creditors. Fortunately, Texas has generous exemption laws that allow you to protect most, if not all, of your property.
To qualify for Chapter 7 bankruptcy, you must pass the means test. The means test compares your household income to the median income for a household of your size in Texas. If your income is below the median, you automatically qualify. If your income is above the median, you may still qualify by demonstrating that your disposable income — after paying necessary living expenses — is insufficient to repay your debts.
What is Chapter 13 bankruptcy?
Chapter 13 bankruptcy is often called “reorganization bankruptcy.” It is designed for individuals who have a steady income but need assistance restructuring their debts. When you file for Chapter 13, you propose a repayment plan that allows you to pay off some or all of your debts over a three- to five-year period. During this time, you make regular payments to a bankruptcy trustee, who then distributes the funds to your creditors.
Unlike Chapter 7, Chapter 13 does not require you to liquidate any assets. This makes it a better option for individuals who own valuable property they wish to keep (beyond a home or car). Additionally, Chapter 13 can help you catch up on missed mortgage or car payments, stop foreclosure, and address tax debts.
Factors that determine which chapter you qualify for
Determining whether Chapter 7 or Chapter 13 is the right choice for you depends on several factors, including your income, assets, and type of debt. Let us break these factors down:
- Income level: If your income is below the Texas median for your household size, Chapter 7 may be a straightforward option. If your income exceeds the median, you will need to complete the means test to determine eligibility. For those with higher incomes, Chapter 13 is often the more appropriate choice.
- Assets: If you own significant assets, such as multiple homes or several high-value vehicles, Chapter 13 may be a better fit because it allows you to keep all of your property while repaying your debts through a structured plan. Chapter 7 may still be an option, but you risk losing non-exempt assets to satisfy your creditors.
- Type of debt: Some debts, such as student loans, child support, and most tax obligations, are not dischargeable in bankruptcy. However, both Chapter 7 and Chapter 13 can help you manage these obligations. Chapter 13, in particular, provides a way to address non-dischargeable debts over time without facing collection actions.
The importance of consulting an attorney
Navigating the bankruptcy process can be complex, and it is crucial to have an experienced attorney guide you through it. A bankruptcy attorney will evaluate your financial situation, explain your options, and help you determine whether Chapter 7 or Chapter 13 is the best path forward. They will also ensure that your paperwork is accurate and complete, reducing the risk of delays or complications.
In Dallas, Texas, the bankruptcy court operates under federal law, but Texas-specific exemption rules and local practices can affect your case. An attorney familiar with the Dallas area can help you maximize the benefits of Texas’ exemption laws and navigate the local court system.
Take the first step toward financial freedom
If you are struggling with debt and wondering whether you qualify for bankruptcy, the best thing you can do is seek professional advice from an experienced bankruptcy attorney. Everyone qualifies for bankruptcy relief in some form, and understanding your options can help you make an informed decision. Whether Chapter 7 or Chapter 13 is the right fit for you, bankruptcy can provide the fresh start you need to regain control of your financial future.
Contact us at 214-760-7777 today to schedule a consultation. Together, we can assess your situation, explore your options, and create a plan to help you move forward with confidence.