Dallas Bankruptcy Blog

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. 

You’ve just been served papers by a creditor for not paying on your debt. Now what?

Being sued by a creditor should be taken seriously because there are implications and consequences to this action.  It can be scary to be served legal papers.  It can also be quite embarrassing if you were served at your place of work or at home in front of your neighbors.  It’s a frightening thought for those not experienced with the legal process. 

However, you do have rights when you’re being sued.  It’s important to know what a creditor can and can’t do to you.  Once you’ve been served you have a certain number of days to respond by filing an answer. 

This is where you get to explain your side of the story. 

You could respond with a general denial, where you simply deny the allegations in as little as one sentence, or it can be a specific denial where you line by line address the issues. 

If you do not file a response the person suing you can obtain a default judgement. 

It is presumed after a certain number of days with no response that you do not dispute the allegations.  It also says that the party suing you is entitled to a judgement.  Filing a response will allow for a hearing, during which you can plead your case. 

Whatever you do, make sure you know your rights.  An attorney might be necessary. 

Can creditors garnish wages? 

The answer depends on what state you live in.  In Texas, the answer would be no.  Most wages are protected from garnishment under Texas law.  Your wages are yours, free and clear.  So if you get behind on a credit card, a signature loan, or any other type of private debt in Texas, you’re not going to have your wages garnished. 

This does not hold true for many other states, however.  There are plenty of states that do garnish wages for debt, private or otherwise. 

Government and government-related debts are susceptible to garnishment in Texas and just about anywhere else.  Child Support, IRS debts, overpayment on social security or taxes, and other similar circumstances will also be taken directly out of your paycheck in most states.  State garnishment laws do not protect these types of debts. 

Even if your state does have protection from wage garnishment in cases of private debt that does not mean that all your assets are protected.  Some states allow property seizure and other forms of forced collection. 

If you’re behind on your debt, you may want to look into where your state stands on wage garnishment and property seizure.  Consider hiring an attorney if you’re concerned about your assets. 

Is it possible that not paying on your debts could land you in jail?  The answer is no. 

Unfortunately there are some unethical creditors and debt collectors out there that make inaccurate and illegal threats.  There is no debtors’ prison.  A long, long time ago people were put in jail for not paying on their obligations, but our thoughts on debt have evolved over the years. 

It’s now understood that you shouldn’t keep people in jail just because they can’t pay their debts.  Doing so would mean they could no longer be productive citizens, earn income, reestablish their lives, or ever hope to pay anyone back.  You will never be put imprisoned for not paying your debts. 

However, if some sort of fraudulent or criminal activity has taken place it’s a different story.  Falsifying financial statements or other illegal activity undertaken in order to acquire credit could result in criminal action.  But if you have been honest in your applications for credit or loans then simply find yourself unable to pay it, that’s not illegal.  So what can creditors and lenders do when someone has acquired debt but failed to pay? 

There is some legal recourse.  If they have attempted to collect and been unable to do so they are within their rights to sue you.  This may result in a judgement from the courts saying that you are in fact responsible for what you owe, but no one is going to send you to jail. 

Those days are over.