Bankruptcy can provide a great deal of relief for those in need. Read about when you should file, how it will impact your financial life, what rules and restrictions apply to you, and advice on pre-bankruptcy planning.

When Should I File Bankruptcy?

Bad things do happen to good people. If you are overwhelmed with debt, to file bankruptcy may be a wise choice. While our law firm primarily handles bankruptcy, we can assist you with certain non-bankruptcy options, such as resolving tax debt or debt settlement.

Signs that tell when you should file bankruptcy:

1. More than one month behind on mortgage, with no plan to catch up in the immediate future;
2. Behind on vehicle and unable to catch up;
3. Unable to meet your basic monthly expenses, such as groceries, housing, transportation, and utilities, without using credit to make your expenses;
4. Taking cash advances, payday loans, title loans or other high interest loans;
5. Major loss of income, or unusually high increase in expenses such as medical bills;
6. Overwhelming tax debt;
7. Unable to afford to make more than the minimum payments on your debt;
8. Losing sleep or suffering extreme anxiety due to worry and stress over money;
9. If you have received a notice that your home is going to be foreclosed;
10. If you have received a notice that your car is going to be repossessed.

Where Do I File Bankruptcy?

Where you file bankruptcy usually depends on where you live (or have lived during the majority of the last 180 days). We handle bankruptcy cases for clients in the Eastern District of Texas, Tyler and Marshall Divisions.  The bankruptcy court is located in Tyler, Texas, however, in Chapter 7 cases, if you are in the Marshall Division, your 341 hearing is held in Marshall.

If you live in Camp, Cass, Harrison, Morris, Marion, or Upshur counties, you are in the Marshall Division. If you live in Anderson, Cherokee, Gregg, Henderson, Rusk, Panola, Rains, Smith, Van Zandt or Wood counties, your 341 hearing is held in Tyler.

In all Chapter 13 cases, your 341 hearing is in Tyler.

Impact on Credit Score

Bankruptcy can stabilize your finances. Obviously, bankruptcy damages your credit score. However, a foreclosure, judgment and multiple charge-offs that are continuously reported to the credit bureau are also damaging to your credit score. You should consult with an attorney about whether a bankruptcy is appropriate for your situation, as only a review of your specific situation will allow them to give you vital information such as the impact of the bankruptcy on your credit score, in the short and long run.

Timing your Bankruptcy Filing

The timing in filing your bankruptcy is of critical importance for several reasons. Regardless of whether you file a Chapter 13 or a Chapter 7 bankruptcy case, the last 6 months of income (not counting the month of filing) is extremely important. If you get bonuses on an irregular basis, you may need to file either before or after a bonus in order to make filing your case easier. Another illustration of the importance of timing is certain rules on the dischargeability of debts arising from cash advances or luxury purchases made immediately before bankruptcy is filed.  Finally, timing can be critical if you have repaid debts to family, business partners, or a company that you own. Generally, you may need to delay filing your case until you are past the time deadline for challenging these repayments. Your bankruptcy lawyer will look at these details and help you determine the most favorable timing for you.

What a Bankruptcy Is

Bankruptcy is the how the law, in contemporary times, removes the burden of overwhelming debt from an individual’s (and family’s) shoulders. Depending on the type of bankruptcy filed, a stressed out debtor may be able to use bankruptcy to totally wipe out debt, lower car payments, and catch up on a mortgage or taxes. One of the most important tools available in bankruptcy is the automatic stay.  This is a legal term for the Court Order that controls the creditors prevents creditors from attempting to collect a debt. The automatic stay is called automatic because it goes into effect immediately when the bankruptcy is filed.

What Bankruptcy Does

Bankruptcy gives an individual a chance to start over and regain financial stability.

Bankruptcy allows an individual or a family to repay a portion of his debts and still retain his home, cars, personal property and dignity.

Bankruptcy may eliminate most or all of most debts.

Bankruptcy can stop foreclosure.

Bankruptcy can stop a tax levy or garnishment.

Bankruptcy can stop auto repossession.

Bankruptcy can stop wage garnishment.

Bankruptcy can stop the termination of utility services.

Restricted Types of Debt

Bankruptcy cannot wipe out child support, certain back taxes, criminal fines and most student loans.

Bankruptcy cannot do away with the payment of most secured debt unless the debtor is willing to pay for the property, although you may be able to catch up over time,  lower the monthly payment, reduce the interest rate and in certain situations, reduce the amount that has to be repaid.

Filing an Emergency Bankruptcy

If you are being garnished, sued, or facing an immediate foreclosure or repossession, you can file an emergency bankruptcy to stop further action. The bankruptcy laws permit bare bones paperwork to be filed provided that you file all the completed paperwork within fourteen days of the petition date. The filing of the bankruptcy instantly stops debt collectors from proceeding, regardless of whether a foreclosure, repossession, or levy is involved.

How long you have to live in Texas to file bankruptcy

You can file bankruptcy in Texas as long as you have lived here for the majority of 180 days. If you have lived only in Texas for 91 days, you are eligible. You may not be eligible, however, to use the Texas state exemptions. That is determined by the state you lived in during the last 730 days. If you have lived in more than one state during the 730 days, you look at the state where you lived in the 180 days before the 730 days.  Exemptions are extremely important since this determines how you are able to protect your property. Texas has very strong exemptions, particularly with regard to protecting the homestead.

Chapter 7 vs. Chapter 13

The most common types of bankruptcies filed by individuals and small businesses are Chapter 7 and Chapter 13. As explained in more detail below, a Chapter 7 is where you wipe out all your unsecured debt, and you reaffirm debt for property that you want to keep.  You must be eligible for a Chapter 7 bankruptcy. Initially your eligibility for a Chapter 7 is determined by the “means test.” This is a test where your household income and size is compared to the average for your state. If you are below average, you are probably able to choose Chapter 7. If you are above median or average,  you still may be eligible for a Chapter 7 depending on what your specific expenses are. If the majority of your debt is nonconsumer debt, such as business or tax debt, you do not have to take the “means test.”

Chapter 13 is where you reorganize your debt over a period of time. Basically, you present a plan to the Bankruptcy Court which details what debt you propose to pay back. You make a monthly payment to the Chapter 13 Trustee who then pays the creditors according to the terms of the plan. Chapter 13 can do everything a Chapter 7 can do and then some.  Chapter 13 is usually what people file when they are behind on a mortgage, car loan or nondischargeable taxes.

If you decide bankruptcy will help you, choosing between Chapter 7 and Chapter 13, your attorney will explain in detail the advantages and disadvantages of each type in your particular situation to help you in making the decision that is right for you.

Bankruptcy Reform Act of 2005

Everyone still calls this “the new bankruptcy law.” That’s because once a law is enacted, it takes many years for courts to interpret the law so that everyone understands more clearly what it means. The Bankruptcy Reform Act is not well written and this has created many conflicting opinions by Bankruptcy Judges struggling to properly interpret it.

Bankruptcy relief is still available and effective. There is a lot more paperwork.  A common myth is that not many people can file bankruptcy after the reforms of 2005, or that you don’t get very much relief by filing. This is not true. While the BAPCPA does make some people ineligible for a Chapter 7 bankruptcy, bankruptcy still offers substantial benefits to the overwhelmed debtor. The purpose of bankruptcy has always been to give the honest debtor a fresh start. This clean slate is still available and offers hope and help to many families.

Spouses Not Required to File Bankruptcy

Both spouses are not required to file bankruptcy. There are particular situations where a married couple may not need for both spouses to file bankruptcy. Examples are where most of the debt is only in one spouse’s name, or where one of the spouse has filed bankruptcy before and is eligible yet for a second filing.

We often see the situation where there is a remarriage with one (or both spouses) bringing debt baggage into the new marriage. These couples not only struggle with the challenges of a remarriage, but try to sort out how to handle debt from a prior marriage. While this may be a more complicated case, this type of debt can be addressed successfully through the bankruptcy process.  Factors that may be considered in this type of case are: how long you have been married at the time you file bankruptcy; how you are handling your finances, such as do you have a joint bank account or are you keeping separate accounts; and how much of the debt was created prior to the marriage. Pre-bankruptcy counseling is especially important in this situation.

If your spouse does not file with you, your spouse’s credit will not be affected by the bankruptcy. The nonfiling spouse’s social security number is listed in the paperwork.  A competent bankruptcy lawyer will always analyze whether or not both spouses need to file, and if possible, one can be left out. However, if both spouses are on all the debt, lifting the burden of debt off of one does not really help the family unit. So, each scenario will be different and based upon the facts.

Filing Bankruptcy Again

Many people think that if they have filed bankruptcy in the past, they cannot file again if they have financial problems again. This is not true. There may be a waiting period. For example, if you have filed a Chapter 7 bankruptcy, you cannot file another Chapter 7 bankruptcy for 8 years, but you can file a Chapter 13 bankruptcy in only 4 years.  If you previously filed a Chapter 13 bankruptcy (and received a discharge), you may file a Chapter 7 after waiting 4 years. If you previously filed a Chapter 13, you may file another Chapter 13 after 2 years. The time period is measured from the date you filed the first bankruptcy case to the date you filed the second bankruptcy case, not the date of discharge. The rules are very technical, but do not rule out bankruptcy as a potential option because you have filed in the past.  Many factors have to be considered, such as whether you actually obtained a discharge in the previous case and whether you are actually seeking a discharge in the refiling.

If you have previously filed a Chapter 13 and the case was dismissed without discharge within the last year, you may refile as long as you are able to show that you are able to perform and that your refiling is in good faith. Occasionally, this will happen where a person is laid off after starting a Chapter 13 bankruptcy, and they are not able to make their payments or lower their payments. In most circumstances, they can refile.

Co-signed Loans

People often turn to a close relative or friend when having financial trouble. If a relative or friend has co-signed a loan for you and you need to wipe out the debt in bankruptcy, the lender can still collect from the co-signer. The exception to this is if you file a Chapter 13 bankruptcy. In a Chapter 13, you can reorganize the debt, paying it off over time, and the lender cannot take action to collect from the co-signer.

Another problem that we see is people wanting to pay back a relative or friend on a pre-bankruptcy loan. In a Chapter 7 bankruptcy, after your discharge is entered, you can make any arrangements that you want to make. However, in a Chapter 13 bankruptcy, you will have to list the relative or friend as a creditor and they will be treated equally to other similar creditors.

Debts You Will Still Owe

After you complete your bankruptcy, you will receive your discharge. Debts that are “discharged” are cancelled out and you are no longer legally responsible to pay them. Some debts are not dischargeable and are not cancelled by bankruptcy. Examples of some of these debts are: domestic support obligations, such as child support or alimony; student loans unless you can demonstrate extreme hardship; debts involving fraud; certain taxes; criminal fines, penalties and restitution orders; and drunk driving injury claims.

Student Loans

If your main debt problem is a student loan, bankruptcy probably will not help you. Student loans are dischargeable only after proving that you are unable to meet your basic living expenses and pay back the student loan. You must also prove extreme facts, such as disability or total lack of ability to work.

The treatment of student loans in Chapter 7 is simple. They are not discharged unless an action is brought and you are able to meet an extremely high burden of proof that payment of the student loan will result in hardship.

In Chapter 13′s, the way a student loan is handled varies by jurisdiction. The majority of jurisdictions generally require that a student loan debt be treated like a general, unsecured debt. The student loan is paid the same pro rata share as other general, unsecured debt.  If you are fortunate enough to be in a 100% plan (where you can afford to pay back all of your debt over the term of the plan with interest), student loans are usually paid direct. Some courts do allow student loans to be treated as a special class, and will permit them to be paid at 100%. This is important because student loans are not dischargeable. What that means is that unless your loan is found to be dischargeable, at the end of the bankruptcy, you will still owe the student loan with interest. Most courts do not allow the student loan lender to assess collection costs or penalties during a chapter 13.

In some circumstances, a chapter 13 may help you. If your student loan payment is too large for you to handle, a chapter 13 may lower your payment enabling you to live and meet your bills while you are in bankruptcy. Again, the problem is that without some type of hardship discharge, the student loan doesn’t go away.

For more information about restructuring your student loans through income based repayment and other options, check out www.studentloanborrowerassistance.org.

Before You File Bankruptcy: What to Do

The most critical thing you can do is consult with a bankruptcy attorney. Most bankruptcy attorneys will meet with you for an hour or two to explain options and potential problems. Before you sell, liquidate, or transfer any assets or pay back any debt, you should take advantage of this. The only exception to this is: do not leave your money in a financial institution where you owe money. If that bank requires you to keep an open account, keep the minimum, but do not use that account for depositing your paycheck. If you receive social security funds of any type, these need to be segregated. This just means you need a special account where there are no deposits other than social security funds. Social security funds are exempt from all creditors (except the IRS, child support and student loans). If you mix social security funds with other funds,  the social security money in the account loses its protected status. Social security funds that have been kept separate also are protected by their own special exemption. Pre-bankruptcy planning will help you to get the most relief possible out of the bankruptcy. The rules are not that hard as long as you know what they are.

Before You File Bankruptcy: What Not to Do

Once you consult with an attorney, you will know whether you have potential problems or assets at risk of being liquidated. Be very up front and honest with your attorney. He or she can’t help you if they don’t know what the situation is. Do not try to do anything sneaky, like transfer assets to a spouse or adult child. Sometimes, people technically transfer assets just to straighten out an honest situation. We frequently see this where a debtor’s child purchased a car, finished making payments, and left home, but no one ever got around to transferring the title. There is a proper way to handle this, and it’s not by transferring the title right before you file bankruptcy. You simply disclose or list it in your bankruptcy schedules and explain why your adult child, and not you own the property.

Even where you own nonexempt assets, there are many ways to still keep your property while being honest and staying within the law. What creates problems for people is not being up front; being afraid of losing property; or trying to protect family by repaying loans. Problems can be dealt with — you just need to be sure your attorney knows about everything so he or she can help you.

Once you know that you intend to file bankruptcy, do not make any additional credit charges. This can create dischargeability problems. This means that despite filing bankruptcy, you may have to pay those charges back.

Do not cash in your 401(k) or your insurance annuity.  They have their own very high exemption limits. These assets can be exempted or protected unless you convert them into cash which you may not have enough exemptions to cover.

Choosing a Bankruptcy Attorney

Bankruptcy is a highly technical field. You should consider an attorney who specializes in bankruptcy and who has filed numerous bankruptcies. You will be spending a lot of time with this attorney, so be sure that you communicate well and like one another. Most bankruptcy attorneys offer a free, initial consultation where you can meet one another without obligation on both your parts. Find out how the attorney’s office works – whether they handle a very high volume of cases and you will primarily be dealing with a paralegal, or whether you can expect most of your contact to be with the attorney; or somewhere in between.

At our office, the attorney personally handles each case. Your case will also be assigned to a paralegal who will handle administrative and routine matters, but all of the legal issues, including your questions on the law, will be personally handled by an attorney. All calls are returned that business day, if possible, but no later than 24 hours. Our goal is to treat our clients like we would like to be treated.

Filing Bankruptcy Without An Attorney

My advice is: don’t. Bankruptcy is extremely complicated. Filing without an attorney could cost you property, time and possibly the discharge. If you think I am prejudiced because I am an attorney, go watch the 341 Hearings for a day or two. While most of the cases are very routine and go quickly, every now and then, problems arise. This is most frequently seen in cases where people are representing themselves. If you cannot afford to hire a bankruptcy attorney, investigate the possibility of a payment plan. You may find that a Chapter 13 is a good option for you where the fees can be paid out over five years.