Though there are many reasons a person may need to consider filing for bankruptcy, and it can ultimately have positive outcomes, it is still a terrifying choice to face. Choosing bankruptcy is a big decision and should be examined from all angles. It can prevent debt collectors from contacting you, but it will also cause a decrease in your credit score. It will eliminate debt, but not all types of debt can be erased.
For every fact about filing for bankruptcy, there is a myth that can make the process seem even more complicated than it is. Hiring an experienced bankruptcy attorney can dispel some of these myths and reduce your fears during the decision process. Steele Law Firm’s bankruptcy lawyers have decades of experience with Texas bankruptcy laws and have a wide range of exposure to even the most complicated of cases. Our skilled staff can evaluate your situation and help create a plan that offers the best chance at a successful financial future.
There are many different types of bankruptcy chapters that you can file. Each type will have regulations and procedures that must be followed, and not all of the options will be available to you, nor would they all even be a wise option if they are available. Speaking with an experienced bankruptcy attorney can help you explore your options and determine the best route for you. The types of bankruptcy are:
This type of bankruptcy is often regarded as the simplest and quickest. According to the American Bankruptcy Institute (ABI)statistics, 28% fewer bankruptcies were filed in Texas between 2020 and 2021; however, 62% of those bankruptcies were Chapter 7 bankruptcies. Chapter 7 bankruptcies allow you to regain control of your finances by legally discharging most of your unsecured debt. Student loans, alimony, child support, secured debts, and tax debt are almost never forgiven through Chapter 7 bankruptcies, but there are many types that will be discharged:
Other types of debts can be removed, but you will lose the asset to which the debt is tied. For example, a vehicle or mortgage loan that you can no longer pay will be discharged, but the creditors can reclaim the vehicle or home. HOA fees can also be discharged, but only if you surrender the condo or home.
To determine your eligibility, the court will apply a “means test” to examine your financial records, including expenses, income, and debt, to ascertain your disposable income levels and compare them to the median income in Texas. During the Chapter 7 filing process, applicants may be required to sell any nonexempt assets but,in most cases, do not have assets with enough equity to sell and pay off creditors. Though the process is meant to liquidate assets to help satisfy creditors, it is not intended to take everything from the filer because that would hinder them from getting back on their feet and contributing to society in a meaningful way. Any assets or possessions determined to be necessities of life, or property required for living and working, are largely exempt from the liquidation process.
Because most assets are sold in a Chapter 7 bankruptcy, it tends to be better for those with fewer assets. It will frequently take less than six months after the initial file date to complete.
This type of bankruptcy is the second most common in Texas. Roughly 30% of the bankruptcy filings in 2021 were Chapter 13. They allow individuals with regular wage earnings to create a plan that repays their debts. Debtors are able to propose a plan to make agreed-upon payments to the creditors over a period of three to five years. In cases where the debtor’s monthly income is below Texas’ state median income, the plan for repayment will last three years unless the court decides there is cause for a longer period. If the borrower’s income each month is more than Texas’ state median, the plan for repayment will generally last five years. Under no circumstances may the plan dictate payments to last longer than five years. For the purpose of Chapter 13 bankruptcies, the court considers current monthly income to be the average monthly income during the six months prior to filing. After the duration of the repayment term has been completed and the debtor has completed a financial management course, the remaining balance of the debts is discharged.
A Chapter 13 personal bankruptcy essentially consolidates all of your debt into a single account.You pay the bankruptcy trustee, and then they distribute the payments to the creditors. This eliminates direct contact with the creditors, as you are protected from creditors while under a Chapter 13 bankruptcy.
Any individual, even those operating an unincorporated business or are self-employed, can file for a Chapter 13 bankruptcy as long as their combined total of secured and unsecured debts is $2,750,000 or less. This bankruptcy option is best for those with assets that they wish to keep and also have the means to maintain through the repayment process. If the court rejects the proposal or the debtor stops making payments, the account can be switched over to a Chapter 7 Bankruptcy.
A reorganization bankruptcy is the next most common type of bankruptcy in Texas. Around 8% of the total 21,715 bankruptcies in Texas were filed under this chapter. A reorganization plan is proposed and voted on by the affected creditors, then confirmed by the court if the required votes are met, and it satisfies the legal requirements. Typically, the debtor remains in possession of the property and has the duties and powers of a trustee. They are able to borrow more money, but it must be done with court approval. A benefit of this route is that the business is able to keep operating while its finances are restructured.
Chapter 11 bankruptcies are typically used to reorganize a business and can be used for a corporation, partnership, or sole proprietorship. It can also be used by individuals, but the Chapter 7 and Chapter 13 options are typically cheaper and faster. The associated debts are frequently large sums of money. Small business owners are able to file under special categories of Chapter 11 that allow for a streamlined process and reduced costs. An automatic stay is implemented once a business bankruptcy is filed in order to provide time for negotiations between the debtor and creditor to take place.
A debtor that has filed for Chapter 11 has a one-time absolute right to convert the case to a Chapter 7 bankruptcy, with the exception of a few circumstances. A creditor may also file a motion to convert Chapter 11 to Chapter 7 for a cause. The debtor does not have an absolute right to have the case dismissed at their request. A Chapter 11 case can last for years, as there is no timeline limit for the entire process. Unfortunately, Chapter 11 bankruptcies are not very successful, as the businesses that use this route are already in deep financial distress.
The remaining bankruptcy types are Chapters 9, 12, and 15. Chapter 9 is similar to Chapter 11 but utilized by municipalities to file for bankruptcy. The intent is to restructure the debt in order to get a better handle on how it operates and reduce the likelihood of being in debt in the future. A Chapter 12 bankruptcy is also similar to a Chapter 11, but it was created specifically for family farms to use. The farm is able to remain operational while the business is restructured, allowing them to continue generating revenue to cover the debt. Chapter 15 bankruptcy applies specifically to foreign cases. They are reserved for those that own property or have debt in the United States but are not US citizens.
The benefits that you can experience after filing for bankruptcy range from emotional to practical. Though the process may be stressful, the end results are likely to be worth the time and effort. The most obvious benefit to bankruptcy proceedings is having the applicable debts discharged. This gives you the opportunity to begin again without the heavy load of financial debt hanging over your shoulders. Though there are some types of debts that cannot be forgiven, like student loans or government fines, many unsecured debts can be eliminated during the bankruptcy process. The debt able to be discharged can include credit card bills, medical bills, and personal loans. It is a viable means to help build stepping stones to get back onto solid ground. Though this is the foremost benefit, it is by no means the only benefit.
There are many myths surrounding bankruptcy that may make you hesitant to begin the filing process, but many of the horror stories are simply that- myths.
Myth: All of your possessions will be lost during the bankruptcy process.
Truth: Most bankruptcy types have the intention of you keeping your property, but with an adjusted debt that is easier to manage. Even in Chapter 7, the liquidation bankruptcy, you will not lose all of your belongings. Built into the process is exempt property, belongings that you will need to live and work. The intent behind bankruptcy is to get you into a position to be a contributing member of society, something that cannot happen if you are left with nothing after the proceedings.
Myth: Bankruptcy will drop your credit to zero and make it impossible to recover.
Truth: The negative effects on your credit are fairly small overall. The record of bankruptcy will be kept in the public records section of your credit report, but this is not a heavily weighing section. If your credit score is below 600, you may see a quick score improvement after the debt is eliminated and your total debt decreases.
Myth: I will be forced to give up my home and/or car if I file for bankruptcy.
Truth: Though there is a potential to lose your home and vehicles during the bankruptcy process in order to pay off some of your creditors, an experienced attorney will have a strong potential to keep these assets for you through the process. Ensure the lawyer that you choose has a proven record with bankruptcy cases in Southlake.
There is a lot to consider when you are facing bankruptcy. It can be a complicated process, and incorrectly handling paperwork can cause a denial of the proceedings. Retaining an experienced Southlake bankruptcy lawyer can help you through the process while improving your situation after the bankruptcy is complete. Steele Law Firm has aided countless clients with filing bankruptcy so they can move on with a fresh start. Our client list is limited, so we can thoroughly devote our time and skill to understanding your specific financial situation. Contact Steele Law Firm today to see what filing bankruptcy can do for you and your family.
