How do I go about filing a bankruptcy?

First, you should contact this office or another firm that practices bankruptcy law.  You are allowed to file your own case without using a lawyer, but bankruptcy can be complicated and having the assistance of a competent attorney is well worth the cost involved.  In addition you must receive the required credit counseling from an approved nonprofit agency prior to filing.

What type of bankruptcy should I file?

That depends on the types of debts that you owe, the property that you own, and other facts concerning your financial situation.  You should discuss your financial problems and income with a competent attorney before deciding on a particular form of bankruptcy.

What are the different types of bankruptcy?

Although, there are a number of different types or “chapters” of bankruptcy provided by federal law, there are only two chapters that would normally be filed by the average person, Chapter 7 and Chapter 13.

What costs are involved in filing Chapter 7 and 13 Bankruptcies?

Currently, the government requires a filing fee of $274.00 for a Chapter 7 Bankruptcy and $189.00 in a Chapter 13 Bankruptcy.  The filing fee must be paid when the bankruptcy is filed. The legal fees for a Chapter 7 should be discussed with an attorney at the time of your initial free consultation. The fees for a Chapter 13 are usually $3,000.00, but most of this fee can be paid out through the bankruptcy.

What happens in Chapter 7?

Chapter 7 is a “liquidation” bankruptcy, in which a person called a Trustee is appointed to determine if you have any property that is not exempt or protected by the law.  If you do have such property, the Trustee is to take the property, sell it and use the proceeds to pay your creditors.  Due to the laws that apply in Texas, most persons do not end up losing property to the Trustee.

At the end of the bankruptcy, which is usually 5-6 months after the case is filed; you will receive an order from the court called a “discharge.”  This order means that you will no longer legally owe the debts, which were discharged, and creditors are prohibited by law from attempting to sue you or otherwise attempt to collect the debts.  However, there are certain types of debts that will not be discharged in a Chapter 7 Bankruptcy.

What types of debts are not discharged in a Chapter 7?

There are a number of debts excepted from discharge, but the ones most likely to arise in the average working person’s case are:

Debts to the IRS and other tax authorities, unless the taxes are at least 3 years old;

Past-due child support and alimony;

Government guaranteed student loans;

Criminal fines or penalties;

A judgment against you based on intentional injuries to a person or property;

A judgment against you based on injuries caused to another person resulting from your driving while intoxicated;

Debts, which you were ordered to pay as part of a divorce or annulment decree;

Debts involving fraudulent use of a credit card or other charge account.  You should ask the attorney about this one as it can be a complicated issue;

Debts, for which you have signed and filed with the court, a reaffirmation agreement.  This usually involves agreeing to keep making payments on a house or car so that you will be able to keep them after the bankruptcy;

Debts, which were not listed in the bankruptcy.

What happens in a Chapter 13?

Chapter 13 is a “reorganization” bankruptcy, which is essentially a debt consolidation plan.  There is a Trustee’s office which is responsible for receiving monthly payments from you and then paying your creditors according to the payment plan.

How does a Chapter 13 plan work?

Under the Chapter 13 plan your creditors are paid according to the type of debt involved.  The first type of debt is a secured loan, which is secured by collateral such as a loan to purchase furniture.  Under this plan, the secured creditor is paid the current value of the collateral plus a reasonable interest.  There are now some exceptions to this general rule, primarily for vehicle purchased within the past 2 ½ years.

The next type of debt is a priority claim.  This usually involves income taxes or past due child support. Under this plan your creditor is paid 100% of the debt without interest.

The next type of debt is an unsecured claim.  This usually involves credit cards, personal loans and student loans.  Under this plan the unsecured creditor is paid from 1% -100% of the debt without interest.  The amount paid depends on a number of factors but the primary factor is the ability to pay these debts after the secured and priority claims are paid.

What advantages does Chapter 13 offer?

Under a Chapter 13 Bankruptcy, you are able to discharge some of the types of debt that are not dischargeable in a Chapter 7 Bankruptcy.  Also, under a Chapter 13 plan you are able to payoff a mortgage arrearage over an extended period of time.  Income taxes can also be paid off over an extended period of time without incurring new interest and penalties.