“Bankruptcy” is a legal proceeding in which a person who cannot pay his/her bills can get a “fresh start”. In Texas, the bankruptcy code is a federal law, meaning it applies uniformly nationwide. Filing for bankruptcy immediately stops creditors from collecting debts from you until the debts are sorted out through an “automatic stay.” Each state, as well as the federal government, have enacted legislation that dictates what property debtors can keep through the bankruptcy process. These laws are known as “exemption laws”.

Exemption Laws

An exemption limit applies to any equity you have in the property. Equity pertains to the difference between the value of the property versus what is owed of the property. If the property is secured by a loan, such as a house or a car, you may choose to keep making payments on the loan and keep this property through bankruptcy.

Texas exemptions:

  • For homestead, the property cannot exceed 1 acre in town, village, or city or 100 acres (200 acres for families) elsewhere; sale proceeds exempt for 6 months after the sale which need not occupy if not acquire another home. Home declaration may also be filed.
  • For personal property, this includes athletic or sports equipment, home furnishings, food, clothing, jewelry (not to exempt 25% of total exemption), 1 motor vehicle per member of the family who holds a driver’s license, livestock, and pets.
  • For insurance, life insurance current value if the beneficiary is a debtor or debtor’s dependent. It also includes retired public school employees group insurance, Texas employee uniform group insurance, and Texas state college or university employee benefits.
  • Pensions of law enforcement officers survivors, municipal employees, police officers, retirement benefits to tax-deferred, state employees, and teachers.
  • Public benefits such as medical assistance, public assistance, unemployment compensation, and workers’ compensation.
  • Tools of the trade such as farming or ranching vehicles and implements.
  • Earned but unpaid wages or commissions to 75%

Chapter 7 Bankruptcy

 Bankruptcy in TexasThis is a “liquidation” where the trustee collects all your assets which are not exempt. The trustee will sell the assets and pay the debtor. The net proceeds are then distributed to the creditor with a commission taken by the trustee overseeing the distribution. Alimony, child support, fraudulent debts, student loans, and certain items charged cannot be discharged in a Chapter 7 bankruptcy. In most cases where the debtor has a large credit card debt and other unsecured bills and very few assets, Chapter 7 is able to completely eliminate all of these debts. 

To declare bankruptcy, you must sign a voluntary “reaffirmation agreement” should you decide to keep your house, car, or furniture. If you do so, you cannot wipe-out that debt again for eight years. You will still owe that debt and obligated to continue paying it as you did before filing bankruptcy. In order to reaffirm the debt, you must make it current, which means, if you are months behind, you need to pay the back payments which are due. You can selectively state what you wish to keep and give back to their respective creditors. Reaffirmation agreements can be set aside during the earlier 60 days after the filing date or upon the court’s order of discharge.

Chapter 11 Bankruptcy

Often called the “reorganization bankruptcy”, it is for businesses that want to continue operating but need time to restructure their finances. Filing for bankruptcy can be done voluntarily or forced on a business if three or more creditors file a bankruptcy petition with the bankruptcy court. After filing, the creditors are temporarily prohibited from taking any action. The business has 4 to 18 months to come up with a plan of restructuring. After that, the creditors can propose their own plan of reorganization. A plan is a contract between the debtor and creditor on how the business will operate to pay off its financial obligations. 

Chapter 13 Bankruptcy

Sometimes called the “wage earner’s bankruptcy”, it is for individuals with enough income to repay all parts of their debts an alternative to liquidation. This is for those who can afford to pay their debts but unable to pay immediately. You can use this to prevent foreclose of your house, update missed mortgage payments, pay back taxes, and keep valuable non-exempt property. If you follow your payment plan, all of your dischargeable debt will be released at the end of the plan. The amount to be repaid depends on the debtor’s disposable income. This is generally used by individuals who want to keep secured assets such as a home or car. It allows them to make up for their overdue payments over time and reinstate the original agreement.

Getting a Lawyer

While you can proceed to file for bankruptcy alone, availing the services of an experienced lawyer will be a great help to you because the bankruptcy laws can be quite complicated and costly. We, at Allmand Law Firm, PLLC, are well versed in bankruptcy cases and will keep you informed of everything you need such as the types of bankruptcy options and the chapter that best fits your situation. We may also help with impending foreclosures and other proceedings even after bankruptcy. Call us now for a free legal consultation.