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Is Chapter 13 bankruptcy the best option for you?


Many Texas residents may be aware that most individual bankruptcies are either filed under Chapter 7 or Chapter 13 of the United States Bankruptcy Code. However, the eligibility criteria for those two types of bankruptcies are slightly different from each other. For example, Chapter 13 is a good option for those people whose debts are comparatively small and have a steady source of income.

In addition to small debts and a steady income, certain other factors can affect a person's eligibility for Chapter 13 bankruptcy. For example, a person looking to file for bankruptcy under Chapter 13 should remember that Chapter 13 is only meant for individuals. If the person has outstanding business debts, that person would have to apply for bankruptcy under Chapter 11 or Chapter 7, as is appropriate.

Also, a person planning to file for Chapter 13 bankruptcy could not have been barred from a Chapter 7 or 13 filing in the past two years. Additionally, that person must not have been dismissed by a bankruptcy court for specified reasons following a Chapter 13 or Chapter 7 filing in the past 180 days.

Moreover, a person who is filing for Chapter 13 bankruptcy must have fulfilled the mandatory credit counseling requirement at least 180 days before a Chapter 13 bankruptcy filing. The debtor must have also filed income tax returns for a minimum of four years. A copy of the latest tax returns needs to be submitted to the trustee at least seven days prior to the first meeting of the creditors. Finally, the repayment plan of the debtor must include all secured debts and certain unsecured debts in addition to mandatory obligations, such as child support, alimony and non-dischargeable taxes.

If a debtor meets all of those requirements, Chapter 13 bankruptcy is most often the best option. However, Chapter 13 filings are often complex and require a thorough understanding of federal bankruptcy laws as well as state exemptions. Therefore, it may be a wise decision to file for bankruptcy after the debtor has taken adequate advice from an experienced bankruptcy attorney.

Source: Findlaw, "Who Can File for Chapter 13 Bankruptcy?" Accessed on July 12, 2015

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