The creditors have stopped asking and started threatening. You’re worrying that the car might not be in the driveway when you go out in the morning. Maybe your mortgage holder has used the “f” word: foreclosure. How can you save your assets? Bankruptcy is a federal legal process for debt management available to most individuals and businesses. Successfully completing a bankruptcy case allows individuals and businesses to either eliminate or reorganize most of their debt.
Here are some common questions often asked by clients considering bankruptcy as a solution to their financial concerns. The answers to these questions are general and may not fit your specific situation. For an in-depth analysis of your circumstances, please contact us at 214-696-9000 to set up a personal consultation at no charge.
When Should I Consider Bankruptcy?
You should consider bankruptcy when:
- You’ve been unemployed for several months and your prospects are questionable;
- It becomes evident you cannot pay your bills as they come due;
- You start considering using your VISA card to pay your MasterCard;
- You receive a letter from your mortgage company threatening foreclosure;
- You fear your car will be repossessed;
- your car HAS been repossessed;
- You’re considering a home equity loan to consolidate your bills;
- You’re considering cashing in your 401(k) or your IRA;
- You’re worried about protecting other assets;
- A creditor is threatening or has filed suit;
- You have significant IRS debt;
- You just can’t abide any more collection letters and phone calls.
Many people are under the mistaken impression that bankruptcy will strip them of their assets. In the vast majority of cases, however, those who file bankruptcy keep all of their assets. In fact, assets like your home, car, pension fund and IRA are protected from your creditors if you file bankruptcy. Therefore, it is vital that you consult with a Dallas bankruptcy attorney before selling, transferring or cashing in any assets.
Are There Alternatives to Bankruptcy?
Of course. Some people have successfully managed their finances through nonprofit credit counseling centers like Consumer Credit Counseling Services of Greater Dallas, Inc. Among other services, CCCS intervenes with creditors to set up more manageable payment plans. Creditor participation in CCCS payment plans is entirely voluntary. CCCS cannot guarantee that a creditor will accept a payment proposal or protect you from further collection efforts.
Sometimes a payment plan can be negotiated directly with a creditor. Obtaining loan extensions, compromises and workout agreements require negotiation skills and experience. These alternatives may alert your creditors to the existence of nonexempt property that the creditor could reach and can involve considerable expenses.
You also have the option of doing nothing, which may entail certain risks. Creditors can obtain court judgments on the debt and then attempt to collect the judgment. Texas law allows creditors to satisfy their judgments out of the debtor’s property, including bank accounts and certain personal property. If you sell real property after the judgment is filed, you will most likely have to satisfy the judgment out of the proceeds of the sale. Judgment creditors cannot, however, foreclose on your homestead to satisfy the judgment, and they cannot garnish your wages.
What Kinds of Bankruptcy are Available?
There are five kinds of bankruptcy:
- Chapter 7 – also known as “straight” bankruptcy
- Chapter 9 – reorganization for municipal entities
- Chapter 11 – reorganization for businesses and for individuals with excessive debt (more than $400,000)
- Chapter 12 – reorganization for family farmers
- Chapter 13 – reorganization for individuals with a regular source of income
Most individuals and couples file either a Chapter 7 case or a Chapter 13 case.
How Long Does a Bankruptcy Case Last?
- A Chapter 7 straight bankruptcy case usually lasts 6 months or fewer, unless the case is complicated.
- A Chapter 13 case will usually last from 3 to 5 years, depending on the repayment plan approved by the court.
Do I Need an Attorney to File Bankruptcy?
No, you are not legally required to have an attorney, but the process can be intimidating, and complications can cause dire results. The bankruptcy courts and trustees are not allowed to give legal advice and can only provide limited assistance in completing the extensive paperwork that must be filed. In addition, creditors may initiate litigation in order to settle their claims. It is very difficult for a person unfamiliar with bankruptcy law to consider all possible outcomes and achieve the desired result.
What is a Chapter 7 Bankruptcy?
The bankruptcy laws are designed so that all debtors emerge from bankruptcy with sufficient assets to make a fresh start. These assets are called exempt property. Chapter 7, also known as “straight” bankruptcy, requires that you turn over all nonexempt property to a bankruptcy trustee, who then converts it to cash for distribution to your creditors. In most cases, you then receive a discharge of all dischargeable debts.
Who Can File a Chapter 7 Bankruptcy Petition?
Almost any individual, partnership, or corporation can file a Chapter 7 bankruptcy petition. The debtor must reside, have a domicile, a place of business, or property in the United States. You can file a Chapter 7 bankruptcy petition regardless of whether or not you are employed. If you filed bankruptcy before, your right to a discharge may be affected. An attorney can help you evaluate your right to file another case.
What is a Chapter 13 Bankruptcy?
When you file a Chapter 13 case, you agree to pay over to the Chapter 13 trustee a portion of your disposable income each month for 3 to 5 years. The disposable income is the money you have left over after your necessary expenses are paid. These payments are used to pay your creditors. Usually, your assets are not affected. Only your future income is paid to the trustee. Usually it will not be necessary to pay your unsecured creditors the entire debt owed. Chapter 13 provisions allow for a discharge of certain debts before they are paid in full. It may also be possible to renegotiate a more favorable loan rate or payment amount on car payments or other secured debt.
Who Can File a Chapter 13 Bankruptcy Petition?
Individuals may file Chapter 13 bankruptcy petitions if they:
- Reside, have a domicile, a place of business, or property in the United States, or a municipality;
- Have a source of regular income; and
- On the date the petition is filed owe less than $360,475* in non-contingent, liquidated, unsecured debts and less than $1,081,1500* in non-contingent, liquidated, secured debts.
*These amounts are subject to change
Corporations and partnerships may not file a Chapter 13 bankruptcy petition. If you filed bankruptcy before, your right to a discharge in a succeeding case may be affected. An attorney can help you evaluate your right to file another case.
Does a Spouse Have to File Bankruptcy, too?
No. If one spouse files bankruptcy and obtains a discharge, his or her personal liability for the debt will be discharged. Creditors are also barred from pursuing any community property to collect on the debt, even if that community property is titled in the non-filing spouse’s name. But, if the non-filing spouse is personally liable for the debt, his or her non-exempt separate property can still be collected against. This is an exceptionally complex area of bankruptcy law and you should speak with your attorney in depth about the effect of only one spouse filing.
Will the Bankruptcy Stop Bill Collectors From Calling?
Yes. A provision of the Bankruptcy Code called the automatic stay prevents bill collectors from taking any action to collect debts. Once a creditor or bill collector becomes aware of a filing for bankruptcy protection, it must immediately stop all collection efforts.
After you file the bankruptcy petition, the court mails a notice to all the creditors listed in your bankruptcy schedules. This usually takes a couple of days. Creditors will also stop calling when you inform them that you filed a bankruptcy petition and supply them with the “docket number” for the case. In some cases, you or your attorney should contact the creditor immediately after filing the bankruptcy petition, especially if a lawsuit is pending or if repossession of cars or personal property is imminent.
A creditor may be liable for court sanctions if it continues to collect once informed of the bankruptcy. Once the bankruptcy is filed, your attorney will assume all responsibility for communicating with your creditors.
Will Bankruptcy Stop a Wage Attachment?
Yes, including IRS wage attachments.
Will Bankruptcy Stop a Foreclosure Proceeding or Prevent Repossession of my Car?
Yes. However, the lender is entitled to apply to the court for permission to continue foreclosure proceedings or repossession. This is called requesting relief from the automatic stay. If you file a Chapter 7 case, you may be able to arrange with the creditor to catch up the payments. If you file a Chapter 13 case, the past due payments can be included in the Chapter 13 and paid over time. If your Chapter 13 Plan is approved, you will be able to keep your house or car during your plan. When your plan is complete, you should get a clear title to your car. Often, a Chapter 13 is the better choice for debtors facing foreclosure or repossession.
If My Car Has Already Been Repossessed, Can Bankruptcy Help Me Get it Back?
Yes. But you must act quickly. If you file a Chapter 13 case and your car has not yet been sold by the creditor, the creditor will be required to return the car to you.
Will Bankruptcy Stop an Eviction, or Unlawful Detainer, Action?
Sometimes it will, but it is usually not a good idea. The owner is entitled to possession of his property and at best you will only gain a short delay. Filing a Chapter 7 solely to avoid an eviction might be considered an abuse of Chapter 7. If the Bankruptcy Court finds that this is true, then the court can immediately dismiss the bankruptcy and impose other legal and monetary sanctions on you. If, however, you are substantially behind in your other bills, and eviction is only one of your financial concerns, a bankruptcy attorney may be able to help you.
Will Bankruptcy Stop a Lawsuit?
Bankruptcy stops most civil lawsuits, including most IRS proceedings. Divorce and criminal cases are rarely stopped because of a bankruptcy case.
Will Bankruptcy Remove a Lien?
In Texas, liens are automatically discharged as long as there is no property for them to attach to. In some circumstances, once the bankruptcy proceedings have started, a special motion can be filed to remove certain liens.
Is it True I Can Cancel All Debts by Filing Bankruptcy?
The underlying policy of bankruptcy law is that the honest debtor who is in debt beyond her ability to repay the debt should receive a fresh start through the discharge of debts. A discharge is a release from personal liability for certain debts.
However, some debts must still be paid. These are known as nondischargeable debts. Generally speaking, they include taxes less than three years old; spousal and child support; debts arising out of willful misconduct or malicious misconduct by the debtor; liability for injury or death from driving while intoxicated; nondischargeable debts from a prior bankruptcy; student loans; criminal fines and penalties.
In many cases, debts that cannot be discharged in a Chapter 7 case may be discharged in a Chapter 13 case. Secured debts also may be discharged, but the secured creditor is entitled to get back the collateral or its value. Debtors can avoid this result by continuing to pay their secured loans during bankruptcy and entering into an agreement with the creditor to continue paying the note after the bankruptcy is over, if necessary.
Must I List All My Creditors?
Yes, even debts owed to relatives and friends and debts you intend to repay after bankruptcy. If you intentionally omit a creditor from your schedules, you have committed perjury. However, sometimes a creditor is overlooked or not known to exist at the time the schedules are filed. Generally, you may amend your schedules at any time during the bankruptcy proceeding to add an additional creditor.
If you accidentally omit a creditor, and the creditor does not otherwise learn about your bankruptcy case in time to participate in the proceeding, the debt owed to that creditor might not be discharged.
If I am Divorced, Will Bankruptcy Eliminate My Obligation to Pay Community Debts?
In general, in Chapter 13 you can discharge your obligation to your creditors and to your former spouse. In Chapter 7, you can discharge your obligation to your creditors, but not any obligations you have to your spouse, such as for property settlements or to reimburse him or her for your share of the community debt.
Is Alimony Dischargeable?
Alimony, maintenance and child support payments generally are not dischargeable.
Can I Discharge Student Loans?
Generally, student loans are not discharged in bankruptcy, unless the student loan is found to impose an undue hardship on the debtor and the debtor’s dependents. Discharge of the loan is not automatic. You have to seek a bankruptcy court order declaring the debt discharged.
Can I discharge taxes?
In most instances, income taxes owed to the federal government are not discharged unless they are more than 3 years old. If you have employees and owe income tax on your employees’ earnings, those taxes are never discharged. Interest and penalties on those taxes may be discharged under certain circumstances. Taxes that are not discharged in a Chapter 7 case can often be paid through a Chapter 13 plan.
Can I Keep Any Credit Cards?
We usually strongly recommend against keeping a credit card that has a balance on it. However, sometimes if the creditor is willing to agree, the creditor may allow you to keep a credit card.
Will Bankruptcy Affect My Job?
Bankruptcy petitions are public records. Consequently, there is always a risk that someone will know that you have filed. Also, in Chapter 13 bankruptcy cases you may be required to pay your chapter 13 plan payment by payroll deduction. If your employer is a creditor it must be listed as a creditor on the bankruptcy paperwork and receive notice of the bankruptcy proceeding.
Do I have to list all of my assets?
Yes. Your assets include your personal property, any real estate you have an interest in, your right to receive something from a contract, debts that people owe you, and many other types of property. If you knowingly and fraudulently conceal an asset from the court, you have committed a felony and can be fined or imprisoned or both. In addition, the court can deny your discharge, or dismiss or convert your bankruptcy case.
What Happens to My Personal Property, Real Property and Other Assets?
You are required to file a schedule with the court describing all of your assets. Certain property is either excluded from the bankruptcy or exempt, and you will be able to keep that property. Often, all of your assets can be protected. If you have property that is not exempt, that property or its value must be turned over to the bankruptcy trustee, who will sell it and distribute the proceeds to your creditors.
In Texas, debtors may choose the Texas exemption list or the Federal exemption list. Each of these lists allows the debtor to exempt an amount of real and personal property, but the lists are not identical. For instance, the Texas list allows a debtor to exempt a homestead without regard to its value, but the Federal list allows only a limited homestead exemption. On the other hand, the Federal list may allow you to exempt some property, like cash, that the Texas list doesn’t provide for. Which one you use depends on the nature of your property and the debt you owe on that property. An attorney can help you analyze your assets and debts to determine which exemption list is right for you.
In many cases you can retain your home and automobile. If you are behind in making payments on a loan secured by a home or automobile or the home or automobile has equity in excess of what you are allowed to exempt, you might consider filing a Chapter 13 petition. You can then develop a plan for repaying your creditors without necessarily liquidating assets.
Even in bankruptcy, the secured creditor is entitled to get back the collateral or its value. Debtors can avoid this result by continuing to pay their secured loans during bankruptcy and entering into an agreement with the creditor to continue paying the note after the bankruptcy is over, if necessary.
Will I Have to Go to Court?
About 4 to 6 weeks after filing the bankruptcy petition, you will have to attend a hearing presided over by a bankruptcy trustee. This hearing is called the Meeting of Creditors. The trustee is not a judge, but an individual appointed to oversee bankruptcy cases. At the Meeting of Creditors the trustee will ask you questions under oath regarding the content of your bankruptcy papers, your assets, debts and other matters. Creditors will also be permitted to ask questions, although in the majority of cases creditors do not attend the Meeting of Creditors.
After the initial meeting you normally will not return to court. However, if a creditor or the trustee files a motion or an adversary action you may have to appear in court with your attorney.
Here are the addresses for the three local bankruptcy courts. Note that the First Meeting of Creditors, which is not a court proceeding, will be held at other locations:
Northern District of Texas
Dallas Division (Dallas, Ellis, Hunt, Johnson, Kaufman, Navarro and Rockwall counties)
1100 Commerce Street, Rm. 12A24
Dallas, TX 75242-1496
Northern District of Texas
Fort Worth Division (Comanche, Erath, Hood, Jack, Palo Pinto, Parker, Tarrant and Wise counties)
U. S. Courthouse
501 W. Tenth Street
Fort Worth, TX 76102-3643
Eastern District of Texas
Plano Division (Bowie, Collin, Cooke, Delta, Denton, Fannin, Franklin, Grayson, Hopkins, Lamar, Red River and Titus counties)
660 North Central Expressway
Plano, TX 75074
What Should I Do to Prepare for Filing Bankruptcy?
First, you should consult with an attorney. An attorney can help you plan for the bankruptcy, decide when to file a bankruptcy petition, or even avoid filing for bankruptcy. If you decide to file a bankruptcy petition:
- Stop using your credit cards. If you charge up your credit cards knowing that you’re going to file bankruptcy, the debt may not be discharged
- Don’t transfer your assets to friends, family and business associates to protect the assets from your creditors. The transfer may be considered a fraudulent conveyance. If it is, you may lose both the property and your right to a bankruptcy discharge. Instead, consult an attorney. There may be legitimate ways to save the property
- Don’t destroy any business or financial records. You can lose your right to a bankruptcy discharge as a result.
- Carefully choose the creditors you pay. Some creditors, such as landlords, secured creditors, and some utilities should be paid under most circumstances. If you pay a credit card debt that eventually will be discharged, you may be throwing money away. Your attorney should advise you on what debts should and should not be paid while you prepare to file a bankruptcy petition.
What if Someone Who Owes Me Money Files Bankruptcy?
If you are listed as a creditor in the case, you will receive notice of the bankruptcy from the court in which the case was filed. Review the notice carefully, as it will tell you whether or not you should file a claim in the case. If the notice indicates that you should not file a claim, the court does not expect that there will be any money to pay to creditors. If the notice instructs you to file a claim, generally you must file a proof of claim in order to be paid. Be mindful of all deadlines for filing claims. If you fail to file a claim by the date indicated on the notice, your rights will be significantly affected.
It is not necessary to hire an attorney to file a claim for you. You can obtain a proof of claim form from any bankruptcy court and most office supply stores. Fill out the form completely and attach any supporting documents you have that would help prove that the debtor owes you money. These may include loan agreements, promissory notes, IOUs, credit applications. In addition, you must also attach copies of statements, account ledgers or computer printouts showing how much the debtor owed you as of the date the bankruptcy was filed. Do not include any interest that accrued on the debt after the date the case was filed unless you have a security interest in personal property of the debtor.
You can file the claim in person, or you can send the claim to the address indicated on the notice. Be sure to include a copy of the claim and a stamped self-addressed envelope so that the court can return a date stamped copy to you. Also send copies to the debtor’s attorney and to the trustee.
If the debtor or the trustee disagrees with your claim, they will file an objection to it and the objection will be set for a hearing. If you choose to contest the objection, it is strongly advised that you contact an attorney to help you protect your rights. An attorney familiar with bankruptcy law will understand your options and will help you to maximize your return.
My Employer Filed Bankruptcy. How Do I Get Paid?
If you are a union employee, contact your union. Often unions will represent the employees in the bankruptcy proceeding. If not, file a proof of claim for any unpaid wages, vacation benefits, etc. owed from before the date of filing. Up to $10,950 (this amount will increase periodically – make sure you check a current version of the Bankruptcy Code) of the amount owed to you for services performed within 180 days of the date of the bankruptcy, or the date your employer closed its doors, whichever occurred first, is a “priority claim” under the Bankruptcy Code. The rest of the amount owed you is a general, unsecured claim. Priority claims will get paid before general unsecured claims.
How Can I Learn More About Bankruptcy?
The attorneys at Armstrong Kellett Bartholow P.C. will be happy to answer your questions.The internet is a good source of general information about bankruptcy. Our links page will guide you to some helpful sites. Be aware, however, that bankruptcy laws change all the time, and other web sites may not have up-to-date information.In addition, the Administrative Office of the US Courts publishes a booklet called “Bankruptcy Basics”. You can read or print this booklet online by clicking here.
Local public law libraries also have information that will help you learn more about the process.
Dallas County Law Library
Civil Law Collection
George Allen Courts Building
600 Commerce Street, 2nd Floor
Dallas, TX 75202
Tarrant County Law Library
100 W. Weatherford, Room 420,
Fort Worth, TX 76196-0800
Collin County Law Library
McDonald St. and Highway 5
(972) 424-1460, ext. 4255
Denton County Law Library
Denton County Courts Building
1450 E. McKinney Street
Denton, TX 76209-4524