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Debt Management Law News

July 9, 2010

Bankruptcy In Texas

If you have financial problems, the bankruptcy process will allow you to no longer be liable for many of your debts. There's no magic formula for deciding when bankruptcy is the right choice. It's an option you might consider if you:

* Are paying only minimum amounts on your bills
* Can't budget yourself out of debt within five years
* Are getting notices that your mortgage or loans are being foreclosed
* Have had a severe financial setback, such as losing your job or a major client, a divorce or a costly illness

Bankruptcy doesn't get rid of all debts. You're still responsible for:

* Alimony
* Child support
* Most recent back taxes
* Most student loans
* Recent large purchases of more than $550 for luxury goods bought
within 90 days of filing
* Fines or penalties of government agencies
* Fraudulent debts
* Cash advances of $825 within 70 days of filing

As a consumer, you can file for bankruptcy in Texas under either:

* Chapter 7 (Straight Bankruptcy) to wipe out all debts except those listed and get an immediate fresh start or
* Chapter 13 (Wage Earner Bankruptcy) to set up a repayment plan to pay back your debts over several years' time.

Bankruptcy Abuse Prevention and Consumer Protection Act

On April 20, 2005, the President signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act, which limits individual access to US bankruptcy courts. Some of the changes, which were effective October 17, 2005, included:

* New bans on Chapter 7
* Increased Chapter 13 payments
* New presumptions against debtors with increased penalties
* The reduction of judicial discretion to balance competing interests

Chapter 7 Bankruptcy

Chapter 7, otherwise known as "liquidation," is generally the simplest and quickest form of bankruptcy and is available to individuals, married couples, corporations and partnerships. A trustee (appointed by the court) gathers and sells your non-exempt property and uses the proceeds from the sale to pay your creditors.

Most chapter 7 cases are "no-asset" case, which simply means that you do not have any non-exempt property for the trustee to sell.
Means Testing

Federal bankruptcy laws provide for a "means test," which will determine whether you're eligible to file for Chapter 7 bankruptcy. This test is used to limit Chapter 7 to those people who truly can't repay their debts. If your income is below the median income for families in your state, based on Census Bureau statistics, you'll be eligible.

If you don't qualify for a Chapter 7 bankruptcy, your only option would be a Chapter 13 bankruptcy. If you make more than the median income for families in your state, it must be determined whether your disposable income will cover your debts. Expenses, such as mortgage and car payments, are deducted from your average monthly income to determine your monthly disposable income. This amount is then multiplied by 60 to determine the amount you could pay over 5 years.

Visit the state median income page to determine whether you qualify for Chapter 7 bankruptcy.

You must also obtain approved credit counseling before you can file bankruptcy and file any overdue tax returns within weeks of filing a Chapter 7 bankruptcy.
Filing Chapter 7

A bankruptcy starts with the filing in bankruptcy court of the official petition and a lengthy document called a "Statement of Financial Affairs." This statement contains extensive schedules requiring a detailed list of all your debts, including:

* All priority debts (including taxes)
* All "secure" debts (including home mortgages and auto loans) that have property as "collateral"
* All unsecured debts of any kind

Other information that must be provided on the Statement of Financial Affairs includes:

* The names and addresses of the creditors
* A list of all assets, including real estate and all forms of personal property

It is extremely important that the Statement of Financial Affairs be completed accurately. Debts that are not listed in the statement will not be discharged at the completion of the bankruptcy proceeding. Failing to list assets in an attempt to hide them from creditors may result in serious consequences, including the denial of discharge or charges of bankruptcy fraud.

Creditors are immediately prevented from trying to collect on your debts through what is called an "automatic stay." The stay is designed to preserve your property and to give you a break from litigation.

Anyone you owe - or anyone who wants to continue collection proceedings during the bankruptcy process - must show the bankruptcy judge, after a hearing, that there is "cause" to be allowed to continue with collection action (for instance, by showing that the property might deteriorate in value during the bankruptcy process).

The trustee takes control of any property you do not get to keep. From the sale of your property, the trustee pays the expenses of the administration of the case, and then gives any remaining money to creditors with allowed claims, according to the priority of the claims (with claims that are "secured" by property being paid first). Any wages you earn after you file the case are yours, beyond the reach of creditors who had claims on the date you filed for bankruptcy.
"341" Meeting

After the bankruptcy is filed, you must appear at the "first meeting of creditors" (also called a "341" meeting). The trustee can ask you questions under oath about your property and debts. Creditors can also question you on those subjects, but seldom do.

Generally, the only responsibility you have after the 341 meeting is to cooperate with the trustee in providing any requested information.

Creditors have 60 days after the 341 meeting to convince the bankruptcy court you shouldn't be allowed to jettison your debts.

The trustee may review your income and expenses to see if you have enough money left after your current living expenditures to pay something to creditors.

What Can I Keep?

There are certain items you may keep after you file for bankruptcy. The items and amounts in this section may change in the future. Updated information can be found in the state code.

In Texas you have the choice of using either the federal exemption statutes or the Texas exemptions. Under the federal exemptions you can keep:

* Your home, including co-op or mobile home, to $20,200
* Life insurance payments for person you depended on, needed for support
* Life insurance policy with loan value, in accrued dividends or interest to $10,775
* Unmatured life insurance contract, except credit insurance policy
* Alimony, child support needed for support
* Pensions and retirement benefits, ERISA - qualified benefits needed for support
* $550 per item in any household goods up to a total of $10,775
* Health aids
* Jewelry to $1,350
* Lost earnings payments
* Your motor vehicle to $3,225
* Personal injury compensation payments to $20,200, wrongful death payments, crime victims' compensation, public assistance, Social Security, unemployment compensation, and veterans' benefits
* Tools of trade up to $20,200
* Wild card - $1,075 of any property plus up to $10,125 of any amount of unused homestead exemption

If you choose the Texas exemptions, you generally can keep:

* Your home, if not more than 10 acres in town or 100 acres out of town (200 acres for families)
* $30,000 worth of personal property ($60,000 for head of family), including one two-, three- or four-wheeled vehicle; two horses, mules or donkeys and a saddle, blanket and bridle for each; 12 head of cattle; 60 head of other livestock; 120 fowl; pets. Athletic and sporting equipment, home furnishing, family heirlooms; food and clothing; jewelry (but not to exceed 25 per cent of total exemptions); tools of your trade
* Burial plots
* Health aids
* Unemployment, disability, veterans', workers' compensation and Social Security benefits
* Alimony and child support
* Retirement plan and life insurance proceeds
* Business partnership property
* Farming or ranching vehicles and implements

A bankruptcy doesn't wipe out voluntary liens, like mortgages and deeds of trust, or tax liens. So the lender still has the right to foreclose if you don't pay. If you pay, everyone is happy. Remember, the lender doesn't want the property; it wants you to pay regularly on the loan. Foreclosure is a last resort for the lender if it concludes it can't get the owed money any other way.

If you still owe money on the car, you can choose to reaffirm the debt to the secured lender. Under the new law, you have to reaffirm your car loan within 45 days after the "341 meeting." You no longer have the option of continuing your car payments without reaffirming the loan. Once the loan is reaffirmed, if you default on your payments and the car is repossessed, you are liable for the repossession deficiency.

You also have the option to redeem the car within 45 days of the "341 meeting" by buying it from the secured creditor in a single payment for its present value.
Chapter 13 Bankruptcy

If you're an individual or a sole proprietor, you can file a Chapter 13 bankruptcy to pay off all or part of your debts over five years. Rather than wiping out debts immediately, this option allows you to reorganize them so you have time to pay.

Many people who file Chapter 13 bankruptcies have:

* Mortgages or other loans they would like to bring current, so they don't lose their homes or other property
* Taxes, child support or student loans that can't be wiped out by Chapter 7 bankruptcy
* Moral convictions that all debts should be paid no matter how long it takes

For a Chapter 13 bankruptcy, you will need a stable income with disposable income (income left over after you pay the bare necessities of life such as shelter, food and utilities). You must have no more than $1,010,650 in secured debt (debt involving property that your creditor might take if you do not make your payments) and $336,900 in unsecured debt.

The court will apply living standards set by IRS regulations to determine what is reasonable for you to pay for living expenses, including housing and food, to find out how much you have available to pay your debts. The filing of the Chapter 13 petition must be accompanied by a proposed payment plan extending over three to five years. The proposed payment plan must provide for the payment of all "priority claims", such as taxes, in full. All tax returns for the four years prior to filing for bankruptcy must be filed.

The bankruptcy trustee appointed by the Bankruptcy Court must review the proposed plan for accuracy and feasibility. The proposed plan is distributed to creditors, who have the right to object to the plan if it's unreasonable. If the plan is approved, you can keep all your assets during the period of the plan. You make monthly payments to the bankruptcy trustee, who distributes the funds to the creditors according to the plan. If the plan is completed as approved, your unpaid debts are "discharged." If you don't complete the repayment plan as approved, you'll have several other alternatives which a Texas Bankruptcy lawyer can explain to you.

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Sometimes, debt can be overwhelming, and bankruptcy becomes necessary.
Bankruptcy can sometimes be difficult. If you are considering bankruptcy, contact the Houston bankruptcy lawyers of Weston & Associates, PLLC at 713-623-4242


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