Bankruptcy

Texas Eastern District Only

Bankruptcy is a legal proceeding in which an individual who is unable to pay his or her bills can get a fresh start. Bankruptcy cases are governed by federal law.

Types of Bankruptcy

There are 4 different types of bankruptcy to consider.  The most common are Chapter 7 and Chapter 13.

  • Chapter 7 - Assets outside of exempt property is sold in order to pay creditors.  All dischargeable debt is reduced to $0.

  • Chapter 11 - Reorganization of debts.  This is reserved for businesses or individual debtors who have a substantial amount of debt.

  • Chapter 12 - Family farmers.

  • Chapter 13 - Reorganization of debts.  This allows the debtor to repay the debt or a portion of the debt, from their income.

Exemptions - What can you keep?

You will be able to keep exempted property following the filing and completion of bankruptcy.  In Texas, you will receive the benefit of federal exemptions, as well as additional Texas exemptions.

Texas Exemptions

  1. Homestead​​​​ - unlimited

    • Unlimited; property cannot exceed 1 acre in town, or 100 acres (200 acres for families) elsewhere

    • If there is a security interest on the property, the home may no longer be exempt.  

  2. Personal Property - $30,000 total (or $60,000 for head of family)

    • Athletic and sporting equipment, including bicylces

    • 2 firearms

    • home furnishings

    • food

    • clothing

    • jewelry (not to exceed 25% of total exemption)

    • 1 motor vehicle per member of family or single adult 

    • 2 horses, mules or donkeys and a saddle, blanket and bridle for each

    • 12 head cattle

    • 60 head of other livestock

    • 120 fowl

    • pets 

  3. Burial Plots

  4. Health Aids

  5. Insurance

    • Church benefit plan benefits​

    • Fraternal benefit society benefits

    • Life, health, accident or annuity benefits o

    • Life insurance present value if beneficiary is debtor or debtor's dependent

    • Retired public school employees group insurance

    • Texas employee uniform group insurance

    • Texas state college or university employee benefits

  6. Certain Miscellaneous Property of Business Partnership

  7. Pensions

    • County and district employees​

    • ERISA, including Keoghs and IRAs

    • Firefighters

    • IRAs to extent tax-deferred

    • Judges

    • Keoghs to extent tax-deferred

    • Law enforcement officer survivors

    • Municipal employees

    • Police officers

    • Retirement benefits to extent tax-deferred

    • State employees 

    • Teachers

  8. Public Benefits

    • Crime victim's award​

    • Medical assistance

    • Public assistance

    • Unemployment compensation

    • Worker's Compensation

  9. Tools of Trade

    • Farming or ranching vehicles and implements​

    • Tools, equipment (including boat and motor vehicles) and books

  10. Wages

    • Earned but unpaid wages​

    • Unpaid commissions up to 75%

Federal Exemptions Supplementing Texas Exemptions

  1. Retirement Benefits

    • CIA employees​

    • Civil service employees

    • Foreign service employees

    • Military honor roll pensions

    • Military service employees

    • Railroad workers

    • Social Security

    • Veterans' benefits

    • Veterans' medal of honor benefits

  2. Survivor's Benefits

    • Judges​

    • US court directors

    • Judicial center directors

    • Supreme court chief justice administrators

    • Lighthouse workers

    • Military service

  3. Death and Disability Benefits

    • Government employees​

    • Longshoremen and harbor workers

    • War risk hazard death or injury compensation 

  4. Other

    • Klamath Indian tribe benefits for Indians residing in Oregon​

    • Military deposits in savings accounts while on permanent duty outside continental U.S.

    • Military group life insurance

    • Railroad workers' unemployment insurance

    • Seamen's clothing

    • Seamen's wages (while at sea) pursuant to a written contract

    • 75% of earned but unpaid wages (or more as determined by the Judge)

Filing Fees

In addition to your attorney fees, there are other fees associated with the filing of a bankruptcy petition.  Most notable is the filing fee.  The Chapter 7 filing fee is $306, and the Chapter 13 filing fee is $281.

Common Misconceptions

  1. "I'm married but I can't file because my spouse does not want to file."

    • You are permitted to file individually, even if you are married and your spouse does not want to file.  However, if you do file together, you will be able to double your exemptions.  If your spouse does not want to file, they will still be liable for any joint debts.  In some cases if only one spouse has debts, or one spouse has debts that are not dischargeable, then it might be advisable to have only one spouse file. 

  2. "I won't be able to get a credit card after bankruptcy."

    • Although not technically a credit card, you could use a bank or debit card for your credit card activities.  Additionally, a creditor may allow you to keep your existing credit card.​

  3. "My credit will suffer."

    • The reality is if you are considering bankruptcy, it is highly likely your credit is already bad.  Bankruptcy will probably not make it any worse.  However, since your debts are wiped out (as permitted), you then are likely to be in a better position to pay your bills, which will allow you to obtain new credit and raise your credit rating.

  4. "People will find out that I've filed for bankruptcy."

    • Although bankruptcy filings are public record, it is highly unlikely that someone other than your creditors or co-signers will ever know you filed for bankruptcy.  This is because someone would have to actively search for your bankruptcy filing, as these filings are not readily available online or published in the newspaper.  

  5. "I'll be left with nothing."

    • You will be able to keep your exempt property, as well as anything you receive after the bankruptcy is filed.  However, if you receive an inheritance, property settlement or life insurance benefits within 180 days after your bankruptcy, that money or property may have to be paid to your creditor if the money or property is not exempt.

  6. "I will only find myself needing to file for bankruptcy if I'm irresponsible with money."

    • This is very often not the case.  Unfortunately, many individuals find themselves unable to pay debt because of substantial medical bills, ​loss of a job, or they are recently divorced.  Bankruptcy was designed to help honest and hard working individuals, and we do not judge our clients who find themselves in need of a fresh start.

House and Car

One of the most common questions people have is whether or not they will be able to keep their house and car following bankruptcy.  The short answer is, so long as you have made your payments, yes.  However, bankruptcy does not discharge a creditor's security interest.  If you gave a creditor a mortgage on a home or used your property as collateral, such as your car, you must have made the payments, and continue to make the payments, if you want to keep the property.  If you do not make your payments, the creditor who has received the mortgage or interest is able to sell the home or property.

There are ways to keep the home or property, however, even if there is a mortgage or collateral on them.  You can agree to keep making your payments until the debt is paid in full.  Another option is to pay the creditor the amount that piece of property is worth.  Finally, if there is a case of fraud or improper conduct by the creditor, you may be able to even challenge the debt.

 

If your home is already in foreclosure, you must file a Chapter 13 in order to keep your home. 

Automatic Stay

This is one of the largest benefits to bankruptcy clients. Once a creditor or bill collector becomes aware of a filing for bankruptcy protection, they must immediately stop all collection efforts. After you file the bankruptcy petition, a notice to all the creditors listed in your bankruptcy schedules is mailed by the court. This usually takes a couple of weeks. Creditors will also stop calling if you inform them that you filed the bankruptcy petition, and supply them with your case number. In some cases, you or your attorney should contact the creditor immediately upon filing the bankruptcy petition, especially if a lawsuit is pending. If a creditor continues to use collection tactics once informed of the bankruptcy, they may be liable for court sanctions and attorney fees for their conduct.

Chapter 7 Means Test

The Means Test is complex and requires several steps and specific information tailored to each person, but the  basic test requires that the debtor show that his or her necessary monthly expenses exceed or are equal to his or her monthly income.  The Means Test prevents individuals who are able to pay off their debts, from discharging them.  

 

Non-Dischargeable Debts

There are certain debts that are not dischargeable.  They are the following

  1. Back child support, alimony obligations, or any other debt dedicated to family support.

  2. Debts for personal injury or death caused by driving while intoxicated.

  3. Student loans, unless it would be an undue hardship for you to repay.

  4. Fines and penalties for violating the law, including traffic tickets and criminal restitution.

  5. Recent income tax debts (within 3 years) and all other tax debts.

  6. Debts you fail to list in your bankruptcy case, unless the creditor learns of your case and becomes involved in your case.

Additionally, there may be additional debts that are non-dischargeable in Chapter 7 if the creditor challenges them:

  1. Debts you incurred on the basis of fraud.

  2. Credit purchases of $1,150 or more for luxury goods or services made within 60 days of filing.

  3. Loans or cash advances of $1,150 or more taken within 60 days of filing.

  4. Debts from willful or malicious injury to another person or another person’s property.

  5. Debts from embezzlement, larceny or breach of trust.

  6. Debts you owe under a divorce decree or settlement unless after bankruptcy you would still not be able to afford to pay them or the benefit you’d receive by the discharge outweighs any detriment to your ex-spouse (who would have to pay them if you discharge them in bankruptcy).

Avoiding Foreclosure

If your home is in foreclosure or close to foreclosure proceedings, you will need to file Chapter 13 bankruptcy in order to keep your home.  Filing Chapter 7 bankruptcy will only temporarily delay the foreclosure proceeding.  You must meet the terms of the Chapter 13 plan, but this does allow you to keep your home.

DISCLAIMER: The information on this website is provided as general information purposes only.  Nothing on this site or use of the contact form for communication with the firm or any individual member of the firm is, or should be construed as, legal advice for any case or situation.  This information or use of the contact form for communication is not intended to create, and receipt and viewing does not constitute, an attorney-client relationship.  © 2019 Nicole B. Phillips, Attorney at Law.

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