TOP 7 QUESTIONS:
When asking yourself ‘should I file for bankruptcy?’ the first thing you must understand is:
1) What is bankruptcy?
In brief, it is a process whereby individuals or businesses can reduce, repay or wipe out their debts while under the protection of the federal bankruptcy court. Generally speaking, bankruptcies can be split into two types -- liquidation and reorganization.
Chapter 7 bankruptcy is an example of a liquidation bankruptcy. In the case of a Chapter 7, the bankruptcy trustee is empowered to sell (liquidate) a portion of the bankrupt’s assets (or property) to repay some of the debts. However, assets/ property that are protected (also called exempt) under state law will be retained by the bankruptee.
There are various types of reorganization bankruptcies, however Chapter 13 bankruptcy is most commonly used by individuals. In Chapter 13, all assets are retained by the bankruptee, but monthly payments must be made over three to five years to repay the majority, or the entirety of of the debt.
Both Chapter 7 and Chapter 13 bankruptcy have many regulations - and indeed, exceptions to those regulations - regarding which debts are covered, who can file, and what assets/ property may or may not be kept.
2) Who qualifies to declare bankruptcy in Houston, Texas?
Almost everyone qualifies to file bankruptcy. What people really want to know when they ask that question, however, is ‘can I successfully file for bankruptcy?’. First you need to figure out why you think you need to file in the first place and if the timing of your bankruptcy is right. Are you overwhelmed by credit debt? Behind on a house or a car? Is the goal simply to wipe out overwhelming debt or to save that car or house from repossession or foreclosure? Once you have the answers to those questions you can then start the analysis of which bankruptcy makes sense for you and whether you can successfully complete it. The first step of that analysis is an examination of your income.
3) Will bankruptcy wipe out all of my debts?
The real answer is, ‘it depends’. Bankruptcy can usually eliminate or reduce dischargeable debts, but not ALL debts. The type of debt and the type of bankruptcy being filed will have a big impact on the process.
The fact is, not all debts are dischargeable (ie. the debtor is no longer required to repay) through bankruptcy. Unsecured debts such as credit cards, collection accounts, personal loans or medical bills are usually dischargeable. However, secured debt, for example, a mortgage is normally not discharged through a bankruptcy and that debt needs to be repaid if the property is not being surrendered (ie. a foreclosure).
Priority debts are also (usually) exempt from discharge. A priority debt is generally a form of unsecured debt which has been classified as higher priority in terms of repayment under federal law. Priority debt may include alimony, child support payments, taxes, student loans and the bankruptcy fees themselves.
4) What is the ‘bankruptcy means test’ in Houston, Texas?
The Texas means test relates to Chapter 7 bankruptcy cases. The test is to define the level of your personal/ family income, which means that if your income is below the Texas median for your household size you are exempt from the test and therefore qualify to file a Chapter 7.
If your income is higher than the Texas median you will need to complete the means test calculation to determine if you can pay back a portion of your unsecured debts through a Chapter 13 bankruptcy.
Here are examples of the Texas annual median incomes:
1 Member Household - $41,354.00
2 Member Household - $56,296.00
3 Member Household - $59,567.00
4 Member Household - $68,566.00
5 Member Household - $76,666.00
5) How to declare Bankruptcy in Houston, Texas?
Before filing for consumer bankruptcy in Texas (Chapter 7 or Chapter 13), you must complete a credit counseling course from an approved agency. You will be given a completion certificate must be filed with the bankruptcy court. The certificate must prove that you completed the course in the 180 days before you filed for bankruptcy. After you have filed, you will be required to take a second course: the debtor education course.
You will need to have all your paperwork organized with your proofs of income, taxes, debts etc. which will be used for the Texas Means Test discussed in question 4.
While bankruptcy (including the filing process) is primarily governed by federal law, some matters are governed by Texas law, for example which exemptions you can use to protect your property In Texas.
When you have completed the stages above you will be ready to decide which type of bankruptcy is right for you.
6) How to file Chapter 7 bankruptcy in Houston, Texas
1. Pre-bankruptcy credit counseling. In Chapter 7 bankruptcy you must receive credit counseling from an officially approved agency during the 24 weeks before you can file.
2. Bankruptcy petition. You will need to complete various paperwork. These include: the bankruptcy petition, schedules (containing all of your financial information) and more (for example: calculating your income and expenses and telling the court which properties may be exempt).
3. Automatic stay. When the bankruptcy petition has been filed, an automatic stay comes into effect. This prevents those who you owe from persisting with payment demands.
4. The bankruptcy trustee. You will be assigned a bankruptcy trustee to oversee all aspects of your bankruptcy. They will want to increase the number of assets in the bankruptcy estate to be shared amongst those to whom you owe. They will also ensure there is no fraud and that all papers are correctly presented.
5. Creditors meeting. You will need to attend a creditors meeting. It will not take place in a court and will be overseen by your trustee. They will question you about finances. Creditors may also want to question you at this meeting
6. Chapter 7 eligibility. Your eligibility for Chapter 7 will be determined by the court. If you don’t pass the means test you will be denied.
7. Property. property deemed exempt will not be lost. The trustee will need make a decision in regards to non-exempt property, it may be sold to pay off debts. Texas exemption rules have been updated, the threshold was increased, read more HERE.
8. Secured debts. Debts for which you pledged property as collateral, perhaps a mortgage or car loan. The property will be surrendered (returned), redeemed (payed for) or the loan may be renegotiated/ continue as before.
9. Financial management course. You must take a debtor's education course before obtaining a discharge. Additional to credit counseling you took at the start of the process
10. Discharge. 12 -24 weeks after filing for bankruptcy you will be granted a discharge. At this point the process and automatic stay end.
11. Case closed. 2 -4 weeks after the discharge your case will be officially closed.
7) How to file Chapter 13 bankruptcy in Houston, Texas
1. Credit counseling course. When filing Chapter 13 bankruptcy you will need to attend credit counseling from an official agency during the 24 months preceding filing.
2. Bankruptcy petition and your Chapter 13 plan. You will be expected to fill out lots of paperwork. Including the bankruptcy petition, schedules (listing financial status and assets), and more. You also need to submit a proposed Chapter 13 repayment plan. This repayment plan will be the crux of your Chapter 13 application.
3. Filing the bankruptcy petition, proposed plan and other documents. Present the court with all this paperwork and your most recent tax returns.
4. Bankruptcy trustee. A trustee will be in charge of reviewing your bankruptcy proposal and making sure everything is present and correct. The trustee will oversee the payments to those to whom you owe and reviewing your earnings and expenses.
5. Automatic stay. After you file the papers an automatic stay will be brought into effect. Your trustee will notify all of the people you owe money too. The automatic stay will stop the people you owe from continuing to chase the debt.
6. Make your first planned payment. Despite the fact that the bankruptcy plan remains unconfirmed (officially), you will now start to pay off the creditors.
7. Creditors meeting. A meeting run by your bankruptcy trustee at which you will be present and be questioned by the trustee and creditors regarding your finances and petition. This meeting will not be held in a court.
8. Confirmation hearing. A court will listen to the complaints by your creditors or the trustee. Providing the court can settle any disputes at this stage your plan will become officially approved.
9. Proofs of claim. Proofs of claim are filed by the people you owe to stake a claim on your repayment. These can be contested or you can file on behalf of creditors who do not submit claims.
10. Adhere to your plan. All planned payments must be made and requested paperwork submitted.
11. Personal financial management class. A second finance course to be completed before discharge.
12. The court grants a discharge and closes your case. When all your payments have been made you will be granted a discharge by the court. This may require you to attend court or you may be notified by letter.