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What are the differences between Chapters 7 and 13?

If you are a Texas resident facing financial circumstances that have you contemplating the benefits of bankruptcy protection, it is always a good idea to be sure you know what your options are before you flip the switch.

There are distinct differences between the various forms of bankruptcy relief available to individuals. Many find Chapter 7 attractive because of the speed with which a court can issue a discharge of debt. The sooner that discharge occurs, the thinking goes, the sooner you can close the books on that particular chapter of your live and move on.

But, depending on your specific situation, there may be clear reasons to opt for Chapter 13. 

Indeed, if you have a steady income, you might not even qualify to file Chapter 7. So, here are some of the particular advantages that Chapter 13 may deliver.

Property exemptions: Exempt property is not sold to pay obligations. If you have multiple properties and more than one vehicle, Chapter 13 allows you to keep them as long as payments are made per the court-approved plan.

More time cushion: The plan under Chapter 13 sets out a schedule of up to five years in which to get current on your obligations. Loans secured by a home or car are included in that plan an repossession and foreclosure action can't be taken as long as called-for payments are made.

Possible stripping of liens: Many people have second or third mortgages on their homes, or lines of credit based on home equity. If your home is underwater, Chapter 13 allows those secondary obligations to be considered as unsecured and dischargeable. If the loan is discharged, any lien that might be attached is also removed, providing more surety that foreclosure won't happen later.

So, while Chapter 7 may be swift, the chances may be greater that you will come out with more of the goods you have struggled so hard to accumulate if you file for Chapter 13. To learn more about this particular issue, read our article titled, "What benefits does Chapter 13 offer?"

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