Understanding Chapter 7 bankruptcy options

Texas residents facing the prospect of a bankruptcy filing understandably have several apprehensions about the process and the outcome. One of the most common questions about a Chapter 7 bankruptcy relates to the ability to keep a home. Many people erroneously think that there is no such option but that is not the case.

In 2012, more than 48,000 bankruptcy filings were processed in Texas. Of those, 6,423 were in the Eastern District, incorporating Grayson County. The need for financial relief is common among many people in the state and there are different options available depending on your individual circumstances. Understanding some of the basics of a Chapter 7 bankruptcy can help you decide if it is the right option for you.

Understanding unsecured and secured debts

According to statistics from the American Bankruptcy Institute, approximately 70 percent of all bankruptcies filed are Chapter 7 cases. This form of bankruptcy is often referred to as a liquidation bankruptcy. This is because creditors are allowed the chance to be repaid at least some if not all of the debts owed through the process of liquidating a person's assets.

However, it is important to note that the liquidation process involves only secured debts, leaving any unsecured debts untouched. The difference between the two types of assets is as follows:

  • Secured debts: secured debts are those that have some type of collateral to guarantee them. A personal line of credit that leverages a paid off automobile as collateral is an example of a secured debt.
  • Unsecured debts: these are debts with no attached collateral as backup payment methods. Examples include store credit lines or cards. If the majority of your debt is unsecured versus secured, Chapter 7 may be a good bankruptcy option for you.

When you work through a Chapter 7 bankruptcy process, you will find that there are some creditors who are willing to revise the terms of their repayment agreements. This can allow you the opportunity to create a revised agreement to pay back those debts instead of having your assets taken as a way to pay the debt. This process is managed through the court-appointed trustee.

Complexities in bankruptcy

There are many situations that make each bankruptcy very individual. Understanding the general laws and guidelines is important but it is always advised that you work with a bankruptcy attorney to ensure you receive the best relief and help possible.