Declaring bankruptcy is not a decision to be made lightly, and many Texas residents who are experiencing financial difficulties struggle for some time with the dilemma of how best to proceed. Different types of bankruptcies provide different methods of handling debt and moving forward with a fresh start, but they also have different criteria to qualify. A good starting point is to determine if the debtor is looking at business bankruptcy vs. personal bankruptcy and whether they are eligible for relief under Chapter 7, Chapter 11 or Chapter 13.

Chapter 11 is primarily employed by large corporations and is considerably more complex than the others. However, it may be used by small businesses or individuals depending on the specific circumstances involved. According to financial professionals, Chapter 11 entails a re-organization plan whereby creditors are segregated by the type of debt they hold and paid by a priority method approved by the court. The plan is designed with the best interests of the creditors in mind.

Individuals typically file either Chapter 7 or 13 based upon an ability to pay some, if not all, of the debt owed. Chapter 7 is often referred to as liquidation because all non-exempt assets are sold to pay creditors. In comparison, Chapter 13 involves the creation of a repayment plan, which generally repays a portion of the debt over a three- to five-year period.

It may be helpful to work with an experienced bankruptcy lawyer to determine the appropriate type of bankruptcy to file. Credit scores are impacted immediately, and the bankruptcy will remain on credit reports for five to seven years. However, the reason most people file for bankruptcy is because they are in an untenable financial situation, and bankruptcy provides for a new beginning with the ability to pay bills on time.