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Which type of bankruptcy is best for you?

If you have substantial debt that is threatening your livelihood, it may be time to file for bankruptcy. Although filing has long-lasting repercussions, it can be a lifesaver when you plan it correctly.

However, bankruptcy is not a one-size-fits-all situation. Chapter 7 and Chapter 13 bankruptcy are the two most common types of bankruptcy, and each has its own pros and cons.


With Chapter 7 bankruptcy, the courts liquidate your assets to partially pay off your creditors. In Texas, you can list some assets as exempt, such as your home and essential property.


With Chapter 13 bankruptcy, the court reorganizes your debt and creates a payment plan for you to continue paying off debts over a three-to-five-year span. You will not have to sell your assets in this case. Note that Chapter 7 bankruptcy can also provide temporary protection for exempt assets. However, if the bank threatens to foreclose your home, for example, only Chapter 13 bankruptcy will provide a more efficient way to catch up on your mortgage payments.

Divorce obligations

After divorce, you cannot write off court-ordered child support and alimony payments. You can, however, discharge non-support debts under Chapter 13 bankruptcy. These are typically debts incurred from settlements over property division.

Business considerations

If you own a business, you can only file for Chapter 7 bankruptcy unless you are a sole proprietor. Then, you can consider Chapter 13.

Financial consequences

Chapter 13 bankruptcy stays on your credit score for 7 years, but Chapter 7 bankruptcy stays on your credit score for 10 years. This could inhibit your ability to qualify for future financing.

One type of bankruptcy might be better for you depending on your situation. Understanding the key differences can help you figure out your eligibility and align your needs.


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