Should you file for Bankruptcy in Texas?
Anyone who has serious financial problems qualifies to file bankruptcy in Texas. In order to file successfully consider the following questions:
Why do you think you need to file?
Is the timing of your bankruptcy right?
Are you overwhelmed by credit debt? Behind on house or a car payments?
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.
How to file for Bankruptcy in Texas?
Texas Bankruptcy: Chapter 7 versus Chapter 13?
The vast majority of bankruptcies filed in the Unites States are Chapter 7 or Chapter 13 bankruptcies. Whether a Chapter 7 or Chapter 13 bankruptcy is the right choice for you depends on your income, assets, debts, and your financial goals.
Chapter 7 is a liquidation bankruptcy designed to wipe out your general unsecured debts,for example - credit cards and medical bills. To qualify for Chapter 7 bankruptcy, you must have little or no disposable income. If your earnings are high a Chapter 13 bankruptcy may be a better option.
If the main goal is wiping out debt, you should see if you could successfully complete a chapter 7 bankruptcy. The main goal of most chapter 7’s is to get a discharge of many types of debts. A discharge is a court order that absolves you of liability on all sorts of debts, the most common of which are credit cards and medical bills (many other types of debts may also be discharged but that is outside the scope of this article).
To have a good chance of successfully completing a chapter 7, you must pass two tests related to your income. One is a formulaic, government test, called the ‘means test’ and the analysis starts with your prior 6 months of income. The other test is called the ‘disposable income test’. This is based on what your real life is like in terms of your average monthly gross income and the deduction of reasonable and necessary expenses, keeping in mind that ‘reasonable and necessary’ is in the eyes of the court. To see if you pass those to tests and to determine if everything else makes sense for you to do a chapter 7, you should meet with an experienced bankruptcy attorney.
Chapter 13 Chapter 13 is a plan of reorganization for a consumer or small unincorporated business. The plan is overseen by the court and the payments are processed through the office of the Chapter 13 trustee. In a Chapter 13 plan, the debtor pays back some or all of the debt owed. Your attorney will help you determine what types of debt may be wiped out and what types of debt must be repaid. Chapter 13 is often used by families facing a vehicle repossession or home foreclosure. Chapter 13 may also be used to have a court administered plan to pay back property or income taxes. Chapter 13 has other uses but these are the most common.
In Chapter 13 bankruptcy, you get to keep all of your property (including nonexempt assets). In exchange, you pay back all or a portion of your debts through a repayment plan (the amount you must pay back depends on your income, expenses, and types of debt). For this reason, Chapter 13 is commonly referred to as a reorganization bankruptcy. Typically, Chapter 13 bankruptcy is for debtors who can afford to make monthly payments, it gives the opportunity to catch up on missed payments on a house or car or to pay off nondischargeable debts such as alimony or child support arrears.
Texas bankruptcy: Chapter 7 process from start to finish
1. Pre-bankruptcy credit counseling. Chapter 7 bankruptcy filers must get credit counseling from an approved agency in the six months before the bankruptcy filing.
2. Bankruptcy petition. There are various forms which must be filed. Principally consisting of the bankruptcy petition, schedules (containing detailed information about your finances) and other forms (calculating your income and expenses, letting the court know which property you claim as exempt in addition to other information).
3. Automatic stay. Once your bankruptcy petition has been filed, the automatic stay goes into effect. The automatic stay prohibits your creditors from continued collection actions.
4. The bankruptcy trustee. The court will assign a bankruptcy trustee to administer your case. This trustee will try to maximize assets in the bankruptcy estate to distribute to your unsecured creditors, check over your paperwork, and look for any possible fraud.
5. The meeting of creditors. You must attend the meeting of creditors (341 hearing). This is not a court hearing, but a meeting run by your bankruptcy trustee. Your trustee will ask you questions about your petition and finances. Your creditors may (but very often don’t) appear and ask questions.
6. Eligibility for Chapter 7. The court decides if you are eligible for Chapter 7. One reason that the court might deny eligibility is that you didn’t pass the means test (discussed previously).
7. Your property. If your property is exempt, you will not lose it. If you have some nonexempt property, the trustee must decide what to do: seize and sell it to repay your creditors or abandon it. The exemption rules regarding property in Texas have recently changes, see our article about this increased threshold HERE.
8. Secured debts. You must decide what action to take regarding your secured debts – those debts for which you pledged property as collateral, for example a mortgage or car loan. Generally you can surrender (give back) the property, redeem (pay for) the property, reaffirm the loan, or take no action and continue paying off the debt.
9. Financial management course. Before you get your discharge, you must take a debtor's education course. This is in addition to credit counseling you received before you filed for bankruptcy (step 1).
10. Your discharge. Three to six months after filing for bankruptcy, the court will grant your bankruptcy discharge. When this happens, the automatic stay ends.
11. Case closed. Within a few weeks of the court granting your discharge your case will be closed.
Texas bankruptcy: Chapter 13 process from start to finish
1. Credit counseling course. Chapter 13 bankruptcy filers must get credit counseling from an approved agency in the six months before the bankruptcy filing.
2. Bankruptcy petition and the proposed Chapter 13 plan. There are a number of forms to fill out, consisting of the bankruptcy petition, schedules (which list all of your property, debts, and other financial information), and others. You must also draft and submit a proposed Chapter 13 repayment plan. The repayment plan is the main element of a Chapter 13 application.
3. Filing the bankruptcy petition, proposed plan and other documents. File the bankruptcy papers along with your most recent tax return and proof that you’ve filed tax returns in the last four years.
4. The court appoints a bankruptcy trustee to administer your case. A trustee will be charged with reviewing your plan and ensuring it complies with the law. The trustee’s tasks will include: paying your creditors in accordance with your plan and monitoring your monthly income and expense reports.
5. The automatic stay. Once your papers are filed the automatic stay will come into effect. The trustee will notify all of your creditors about your filing and the stay. The automatic stay is to prohibit creditors from continuing with debt collection. In some cases there may be exceptions to the automatic stay and creditors may also ask the court to remove the stay.
6. Make your first planned payment. Even though your plan has not yet been officially confirmed, you must begin making payments. This usually applies about a month after you have filed your papers.
7. Meeting of creditors (341 hearing). You must attend the meeting of creditors. This is not a court hearing, but a meeting run by your bankruptcy trustee. Your trustee will ask you questions about your petition and finances. Your creditors may (but very often don’t) appear and ask questions and may object to your proposed plan.
8. Confirmation hearing. You or your attorney must attend a confirmation hearing held in court. The court reviews any creditor or trustee objections to your plan. Hopefully your plan will be confirmed at this stage.
9. Proofs of claim. Creditors file proofs of claim so that they can get paid. You can object these. If an important creditor doesn’t file one, you may want to file one for the creditor yourself so that you can include that debt as part of your bankruptcy case.
10. Comply with plan requirements and payments. For the duration of the repayment plan, you must make your planned payments and may also be required to submit certain documents, for example, income and expense statements.
11. Personal financial management class. In addition to the credit counseling course (step 1) you are required to complete a debtor education class before the end of your case.
12. The court grants a discharge and closes your case. When you successfully completed your repayments the court will grant you a discharge. There may be a discharge hearing or you may be notified by mail (without a court hearing).
If you have any questions regarding filing for bankruptcy in Houston, Texas, please call to schedule a meeting with Attorney Rod Kemsley for a free consultation. We can discuss your debts and your exemptions to make sure we can protect your property from seizure. If you would like to discuss your bankruptcy options, please call 281-847-4345 to schedule a free consultation.