Dallas Bankruptcy Blog

Many people are having difficulty in repaying their mortgage, car loans or credit card bills due to job loss or simply because they don’t make enough money. If this is the case for you, and if your creditors are hounding you for payments, then this could be the right time to file for bankruptcy.

However, depending on certain conditions, you will need to find out whether chapter 7 or chapter 13 is suitable for your case.

Read the factors mentioned below to make up your mind.

Conditions for Filing Chapter 7 Bankruptcy

If you have just lost a job or other source of income, and are sure that you will not be able to get another job or raise money through any other method in the near future, then you could file for bankruptcy under chapter 7.

If you have insufficient assets on hand, then chapter 7 bankruptcy may be right for you. You will, however, need to pass the ‘Means Test’ organized by the bankruptcy court - in which your gross income will be calculated for the previous 6 months and compared to the average median income of a similar sized family in your area.

If your income is lower and you have no other means of paying off your creditors, then you could qualify for filing bankruptcy under this chapter. In such a case, the court will appoint a trustee who will compile a list of all your non-exempt assets and sell them off in order to pay off your creditors.

The rest of your debt could be discharged (i.e., canceled by the court). However, as an individual, if you do not pass the means test, then you will have no choice but to file for bankruptcy under chapter 13.

Conditions for Filing under Chapter 13

If you are unable to file for bankruptcy under chapter 7 due to income restrictions, or if you have many debts that are not dischargeable under chapter 7, then you will have to file under chapter 13.

In this case, you will need to come up with a repayment plan to clear off your old debts within a span of 3 to 5 years. The court will have a look at your plan, along with your creditors. Once approved, you will need to abide by the new repayment plan.

Filing under this chapter will save most of your assets from being taken away by the court - and you will have a new chance to clear off your debts in a structured way. If you have found a lower paying job, or have other regular income, then this could be the chapter for you.

Most people first try to file for bankruptcy under chapter 7, since some of the debts could be discharged. Under chapter 7, most cases are settled in 4 months, as opposed to the 3 to 5 years that you would need to clear off your debts under chapter 13.

In a nutshell, you should know your financial position at the time of filing for bankruptcy. You should also look into how you can arrange to have a regular income for your restructured payment plan before you file for bankruptcy.

Your bankruptcy attorney can guide you as to which chapter will be more helpful in getting you financially stable in the long run.

If you find yourself owing a lot of money to your creditors, either by way of secured or unsecured loans, then you could file for bankruptcy - and start your financial life all over again.

Below are the steps that you will need to take in order to get your life back on track.

What Do I Do First?

Once you realize that there is now way out, and your creditors are after you to get their money back (which you do not have), then you should get in touch with an experienced bankruptcy attorney. They will first review your financial status, and then help you to file a petition in bankruptcy court.

You can file for bankruptcy under Chapter 7 or Chapter 13. In Chapter 7, your non-exempt assets can be disposed of by a trustee appointed by the court, and your creditors will be paid that money.

Your unsecured debts can be discharged under this chapter, and you will get a fresh lease of life in just 4 months.

Certain obligations such as alimony, child care, secured debts and certain taxes cannot be discharged.

In a Chapter 13 bankruptcy, you can reschedule your debt payments and pay off the balance within a period of 3 to 5 years.

Your bankruptcy attorney will submit a written plan to the court regarding your repayment schedule. The advantage of filing Chapter 13? It will let you remain in control of your financial life - and you will also retain possession of your assets.

If you realize that bankruptcy is a viable option for you, then time is of the essence.

What Will The Court Do?

If you are filing for bankruptcy under Chapter 7, the bankruptcy court will put you through a “means test”, in which your gross income for the six months prior to filing for bankruptcy is calculated and compared to the average median income of a similar sized family in your area.

If your income is lower than the median income, then you will qualify to file under chapter 7. If not, your bankruptcy attorney will need to file under Chapter 13. Once you have filed under the relevant chapter, the court will appoint a trustee.

The trustee will start compiling a list of all your non exempt assets, which will be disposed of in order to pay your creditors.

If you have filed for bankruptcy under Chapter 13, the trustee will arrange a meeting with your creditors and present your repayment plan.

Once that plan is approved, the trustee will also monitor your payments; it is essential that you do not go back on your written word.

What Happens After the Bankruptcy is Filed?

Once the court has approved the Chapter under which your bankruptcy case is filed, then you will need to follow the lead of your trustee.

If your bankruptcy attorney filed under Chapter 7, then the trustee will dispose of all your non-exempt assets and pay off your creditors. If you have filed for bankruptcy under Chapter 13, then you will need to ensure that you pay your debts in accordance with the new repayment plan.

You will need to keep an eye on your expenses in the coming 3 to 5 years as you get your financial matters back on track.

Needing to file for bankruptcy is no reason to be disheartened. View it as another chance given to you by the court to get your financial life back in order. After all, everyone is entitled to a second chance.

Aren’t you?

If you are facing financial difficulty and wish to file for bankruptcy, then you could file under either chapter 7 or chapter 13.

However, consumers are now required to pass a ‘means test’ in order to qualify for filing under chapter 7.

The new bankruptcy laws make it more imperative than ever for consumers to seek the services of a competent, knowledgeable bankruptcy attorney.

What Is Chapter 13 Bankruptcy?

If you are earning a decent income but have taken out a mortgage that is proving to be too large for you to handle financially, then filing for bankruptcy under Chapter 13 is a good option.

Filing under this chapter will help you save your assets from falling into your creditor’s hands.

Your bankruptcy attorney can help you to draft a repayment plan. This plan, which is usually drawn out over a period of 3 to 5 years, will then be presented to your creditors.

The court will appoint a trustee to manage your repayment schedule, and the trustee will collect the installments and pass payments on to your creditors.

Under Chapter 13 bankruptcy, you can work out a new repayment schedule with your creditors. This will put less stress on you financially, and will also satisfy your creditors about your seriousness to repay.

Any debts left over after the repayment period are discharged. Some debts, such as alimony, child support, student loans and some taxes cannot be discharged.

One of our knowledgeable bankruptcy attorneys will analyze your case and get back to you right away.

The Advantages of Filing Chapter 13 Bankruptcy

Once you file for bankruptcy under Chapter 13, your creditors will no longer be able to contact you at your home or office in an effort to collect. You get an ‘automatic stay’ from your creditors – this is the law.

Once your repayment schedule is approved by the bankruptcy court, you will continue to remain in control of your finances - and your life. You will now be able to repay your debt in a much more organized manner.

You will, however need to maintain the rescheduled payments; otherwise, your creditors will still be able to go after your assets if you have taken out a secured loan (i.e. a loan where you have submitted collateral such as your home or car).

The bankruptcy will stay on your credit record for a period of 10 years. However, in all likelihood, you will be able to get a new credit card – and probably even a mortgage - after just a few years.

If you don’t mind paying installments for 3 to 5 years in order to safeguard your assets, then filing for bankruptcy under Chapter 13 is a good option.

If you live in Plano, Texas and find yourself in a financial crisis that you cannot seem to get out of, then you may want to consider filing for Chapter 7 bankruptcy.

Under this chapter, it is possible to liquidate all your unsecured debt - such as credit card bills, signature loans, payday loans and medical bills - where you have not given any collateral.

Below are details of filing for bankruptcy under Chapter 7.

The Advantage of Filing under Chapter 7

The biggest advantage of filing under Chapter 7 with the help of an experienced bankruptcy attorney is that you can get a fresh start in your financial life within 4 to 6 months, which is normally the time it takes for your case to get discharged.

Your unsecured debts are liquidated, and your creditors will have to stop harassing you. This includes foreclosures or repossessions. A trustee will be appointed by the bankruptcy court - and that trustee can sell your unprotected or non-exempt assets to pay off your creditors.

Once your case is disposed under a Chapter 7 bankruptcy, your credit rating will also start to climb back into positive territory again. Depending on your case, you may also be able to retain all your assets such as your home and car.

Do You Qualify For A Chapter 7 Bankruptcy?

Prior to your bankruptcy attorney filing for any bankruptcy on your behalf, you will need to undergo credit counseling by an “Approved non-profit budget and credit counseling agency”, and you will also have to submit proof that you have received such counseling.

According to the new law, applicable from October 2005, you will need to undergo the “means test”. This is a test where your gross income during the 6 months prior to you filing for bankruptcy is compared with the average median income of a family of similar size in Texas - after adjusting all the deductions as specified under the new law.

If your income is below the median income and if, after deducting your expenses from your income, you are not left with at least $100 to pay off your creditors, then you could be eligible to file for bankruptcy under Chapter 7.

If it is determined that you are not eligible to file under Chapter 7, then your bankruptcy attorney may be able to file under Chapter 13. However, it is up to the bankruptcy court to make the final decision after you have submitted the relevant documents.

Documents to Be Submitted

You will need to submit a list of your creditors along with a list of your assets, income, expenses and your liabilities to your bankruptcy attorney. You will also need to provide proof of credit counseling and pay stubs for a period of 60 days before you filed for bankruptcy.

You will also need to provide tax returns. Your bankruptcy attorney will submit all these documents to the bankruptcy court within 45 days of filing your petition; otherwise your case could be dismissed.

Remember - that you can get discharged under Chapter 7 only once in 8 years.

Filing for bankruptcy under Chapter 7 is a faster way of getting your creditors off your back, so that you can concentrate on getting your financial life back on track.

When hiring an attorney to assist you in filing for bankruptcy, it’s important to make sure they are Board Certified.  Only a small portion of attorneys actually carry this certification. 

What does it mean to be Board Certified? 

In order to qualify, an attorney must have continually practiced in the area for which they seek certification.  If an attorney wants to be certified in Consumer Bankruptcy for example, he or she must have continually worked on such cases for five consecutive years. 

The attorney must also have a considerable amount of continuing legal education that applies, such as seminars on the specific topic of bankruptcy.  In addition, the attorney is required to have a number of contested bankruptcy cases that have gone to hearing, proving they are capable of arguing those cases. 

Certification is not possible without practical experience. 

Finally, a written test must be completed and passed demonstrating the attorney’s knowledge.

Anybody who goes to law school and gets their degree can practice in the area of bankruptcy, but not all attorneys are capable of satisfying all three areas required for board certification. 

If you want a real specialist, someone who knows all the aspects of bankruptcy, make sure you get a bankruptcy attorney that is Board Certified. 

Filing for bankruptcy can yield very positive results for people who owe the IRS. Once you file for bankruptcy, you are provided immediate paycheck protection. In addition, certain types of tax debt are dischargable. 

This means all the tax money you owe is wiped clean.  Not all types of tax debt qualify, so it’s important to know what type of IRS debt you have. 

In order for a tax debt to be considered general and unsecured, and therefore dischargable, it has to meet certain criteria.  First, it must be more than three years old before the first year of bankruptcy; Second, the return must have been filed at least two years prior to the bankruptcy filing; and third, the taxes must have been assessed at least 240 days before the bankruptcy claim was entered. 

Tax debt that is incurred within three years immediately proceeding a bankruptcy filing is considered priority and is not automatically discharged.  You will still have to pay on it after the bankruptcy is filed.  There is still a benefit to your bankruptcy in this case however, as your tax debt is no longer subject to penalties and interest. 

A tax lien trumps any other classification of tax debt.  In terms of bankruptcy though, a tax lien is not a nail in the coffin because it is only secured up to the amount of equity you have in your property.

Talk to a bankruptcy attorney to find out if your IRS debts can benefit from filing bankruptcy.

Is it ethical to transfer non-exempt property to a family member before filing for bankruptcy?  The answer is no. 

Making transfers in contemplation of bankruptcy can have negative results for the filer.  Ninety days before filing for bankruptcy it is presumed that you are insolvent or, in essence, bankrupt. 

Any transfers or payments might be treated as preferences.  Lenders or the bankruptcy court may feel that you are trying to avoid having to pay your debts by making preferential payments to one creditor over another, or by transferring property for less than its value to an insider or family member. 

For example, let’s say a person has a house that is exempt before they file for bankruptcy, but then they suddenly inherit ten acres of property.  That ten acres will not be exempt when they file.  They will have to pay back their creditors the value of the non-exempt ten acres, or the trustee might sell the property in order to do so. 

Transferring the ten acres to a family member ahead of filing could be considered an attempt to defraud creditors.  The best outcome in this case is that the bankruptcy court takes the property back and sells it to pay the outstanding debts; at worst the person could find themselves facing federal charges of bankruptcy fraud. 

 There are ethical ways to plan for bankruptcy.  Consult with a bankruptcy attorney to find out what legal options are available before you make a mistake.

For the most part, student loans cannot be discharged, even by filing for bankruptcy.  The vast majority of people will have to pay back all the money they borrowed for their education, plus any interest acquired. 

There are a few cases that qualify for forgiveness from a lender. 

If a person is diagnosed with a terminal illness or another type of serious tragedy that makes it impossible for them to pay back their student loan debts, they can receive a discharge. Very few cases actually succeed, though.  If there is any possibly that you will recover from your illness or disability, than more than likely you will not be eligible.

Bankruptcy can still help with your student loans, even if they can’t be discharged.  Chances are that a student loan is not the only debt a person has.  Let’s say a person is making the minimum payment on their credit card every month, but the amount of debt they have acquired makes it difficult or even impossible to pay their educational debt. 

In this case, a bankruptcy would be beneficial by allowing the unsecured debt to be discharged, therefore making money available to repay the student loan.  In addition, filing for bankruptcy stops student loan companies from being able to garnish wages. 

So if you’re having trouble with your student loans and a complete discharge is not an option, filing for bankruptcy might help.   

Unfortunately, student loans are not dischargable by bankruptcy.  In the 1980s, Congress instituted reform to make student loans non-dischargable. 

The public policy and motivating factor behind this was to ensure funds are available for people that desire an education.  Policymakers reasoned that if people were allowed to file for bankruptcy or otherwise discharge educational debts without paying for them, then nobody is going to make those kinds of loans anymore. 

This thinking is misguided.  At the very least, instances like that would be few and far between. 

This policy does not benefit the government who not only wants to make sure money is available to give people access to an education, but also wants people to become productive, taxpaying members of society. 

The practical effect of this reform is that 99% of people who incur Student Loans are going to have to repay them and the interest they accrue.  For some individuals, this reality can be truly heartbreaking and even impossible.  For this reason, there are some cases that do qualify for the discharging, forgiving, or deferring of student loans.

The rules are different for each lending institution - but if you’ve decided to return to school, recently lost a job, or experienced some sort of catastrophic event, there may be a way to avoid payments, even if just temporarily. 

It’s best to get with your lending institution to find out what options are available to you.

What happens when a creditor gets a judgement against you? 

A judgement is just an affirmation that you definitely do owe money and that the creditors have the right to collect on it.  The creditor then has to take that judgement and get it recorded with the local clerk of the court.  This is also where property liens are listed. 

Let’s say that the law protects your home from being seized.  If you do choose to sell your home and the creditor has a judgement filed against you, they can then collect what you owe from the proceeds of that sale. 

 Judgements are good for ten years, but there is a process for creditors to renew it when it expires.  The other tricky feature about a judgement is that the creditors then become entitled to interest.  Say you had a debt of $10,000 and you didn’t pay on it for ten years. The interest accrues over time.  You may now be responsible for $20,000 or even $30,000.

What can filing for bankruptcy do in this situation? 

Filing for bankruptcy creates what is called an automatic stay.  This means that all collection and legal activity will be halted.  Once the bankruptcy is completed the lawsuit is dismissed. 

Even if you’ve already had a judgement against you for not paying on a debt, bankruptcy will wipe it clean.  Just because you have an existing or impending judgement against you, it doesn’t mean filing bankruptcy won’t help. 

A judgement doesn’t have to be the end of the world.