Bankruptcy Frequently Asked Questions
Bankruptcy is often a horrifying term for any family. Texans are known for their strong work ethic and hardiness, but when all of that hard work still cannot overcome financial hardship, bankruptcy may seem like another setback. Alison Grant, Attorney at Law, knows that while it may seem this way, bankruptcy is a tool that can be used to help put families back on their feet and help them find financial stability.
There are a lot of misconceptions and misinformation about bankruptcy. To better help our clients understand what bankruptcy is and to set them on the right path, our team has created this FAQ page to answer some of the most common questions our team receives.
What Is Bankruptcy?
Bankruptcy is a legal proceeding that provides a way for individuals who cannot pay their debts a way to get a fresh financial start. Unlike other types of law, such as personal injury, bankruptcy takes place on a federal level. All bankruptcy cases will be handled by a federal court.
Filing for bankruptcy immediately stops all creditors from seeking to collect debts from you. This will continue until all of your debts are sorted out by the courts.
What Is Chapter 7 Bankruptcy?
Chapter 7, also known as straight bankruptcy, is a type of bankruptcy that clears away unsecured debts. This is typically the right option for individuals or families who are far behind on bills and no longer have the means to make monthly payments while also covering living expenses. Filing for chapter 7 bankruptcy should be used as a last resort to reset finances and get individuals or families on the right track.
How Does Chapter 7 Bankruptcy Work?
When you file for chapter 7 bankruptcy, the court will place an automatic temporary stay on your current debts. This automatic stay will stop creditors from collecting payments from you, protect your wages from being garnished, stop foreclosure procedures on your home, and stop banks from repossessing property. Rental property owners will not be able to evict you during this time due to missed payments and utility companies will not be able to turn your utilities off.
The court will then take legal possession of your property and appoint a bankruptcy trustee to your case.
What Is a Bankruptcy Trustee?
A bankruptcy trustee’s job is to review your finances and assets and oversee your chapter 7 bankruptcy. Trustees can sell property that the bankruptcy will not allow you to keep. This property will always fall under the nonexempt property category. The proceeds from these sales will go towards paying your creditors back.
The trustee will also be in charge of arranging and running a meeting between you and the creditors. This is called a creditor meeting. This will take place in a courthouse and require you to answer questions about your bankruptcy filing.
At the end of the bankruptcy process, which generally takes four to six months from your initial filing, the court will discharge your remaining debts. This means you will no longer be responsible for paying them.
It is important to note that some debts cannot be discharged. These include the following:
- Child Support
- Court Fees
- Some Tax Debts
- Student Loans
Will All of My Property Be Taken?
No. Federal and Texas State laws protect individuals during bankruptcy by placing some property under the category of exempt. These pieces will be exempt up to a certain value and this value will vary between the states.
For the state of Texas, the following property is considered exempt:
Texas Homestead Exemption
The Texas homestead exemption protects an unlimited amount of equity for your principal residence. This applies to property that is on 10 acres or less in a city, town, or village. For properties that are in the country, the property is protected for 100 acres or less.
Texas Motor Vehicle Exemption
The Texas motor vehicle exemption allows you to exempt the entire value of one motor vehicle per licensed driver in the household. Vehicles can also be exempt for unlicensed individuals if that person relies on someone else to operate the vehicle.
It is important to note that motor vehicles must be included in the $50,000/$100,000 personal property exemption cap.
Personal Property Exemptions in Texas
The personal property exemption is for property (that is not real estate) that cannot exceed more than $50,000 for a single adult or $100,000 for families. Items that can be included in the $50,000/$100,000 cap is:
- Home furnishings including family heirlooms
- Clothing and food
- Farming and ranching vehicles and tools
- Tools of the trade such as books, musical instruments, commercial boats, and vehicles
- Jewelry that is limited up to $12,500 for a single filer or $25,000 for a family
- Two firearms
- Athletic and sporting equipment, including bicycles
- Animals such as pets; two horses, mules, or donkeys plus tack; 12 head of cattle; 60 head of livestock; and 120 fowl.
There are other items that are also exempt from being taken from you during bankruptcy but they do not need to be counted towards the personal item cap. These include the following:
- Current wages except for court-ordered support
- Health aids
- Alimony, spousal support, or spousal maintenance
- Religious books containing sacred writings
- Burial plots
Pension and Retirement Account Exemptions
For pensions and retirement accounts, the general rule of thumb is that if they are tax-exempt, then they generally fall under either Texas State Law Exemptions or Federal Exemptions. These include the following:
- Qualified retirement plans
- State Employees Pensions
- County and District Employees
- Municipal Employees
Insurance exemptions are as follows under Texas Bankruptcy Laws:
- Fraternal benefit society benefits
- Life, health, accident, or annuity benefits
- Texas state employee group life insurance
There are other exemptions that don’t fall under any of the previous categories. These are as follows:
- College savings plan
- Crime victim’s award
- Public officers killed in duty survivor benefits
- AFDC, welfare, and foster care benefits
- Medical assistance
- Interest in specific partnership property
- Unemployment benefits and worker’s compensation
What Is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?
Chapter 7 bankruptcy can remove certain debts within several months as a court-appointed trustee will sell the nonexempt property to pay back your creditors. For chapter 7 bankruptcy to apply, you must pass a means test.
For Chapter 13 bankruptcy, filers will be able to keep their property and instead get on a more affordable repayment plan with their creditors. To be able to qualify for Chapter 13 bankruptcy, you will need to have enough income to afford the payments and be below the maximum total debt limits. These limits are as follows:
- $400,000 for unsecured debts
- $1 million for secured debts
A court will have to approve the Chapter 13 repayment plan. This plan can last anywhere from three to five years, and your trustee will collect the payments and distribute them to the collectors. When the repayment plan period is up, the rest of the unsecured debt will be discharged.
What Is Loan Modification?
Loan modification is a negotiation process between a debtor and his or her creditor resulting in a modified loan agreement. If an individual is struggling to repay a loan or debt, loan modification may be an option. Most creditors are willing to accept a lower payment rather than risk losing the entire amount owed.
An experienced bankruptcy attorney, such as Alison Grant, can help you negotiate with a debt collector to ensure that the new terms allow you to repay your debts without having to file for bankruptcy.
Schedule a Consultation Today
The team at Alison Grant, Attorney at Law, understands that bankruptcy is a difficult process that has a lot of unknowns. Our team will work with you to help you navigate through the various steps of the bankruptcy process so you are set up for better financial success. Contact our team today for more information or to schedule an appointment.