If you are struggling financially with your small business or with your personal affairs, one way to get a fresh start and get a better handle on your debt is to file for bankruptcy. Filing for bankruptcy is a very serious matter, one that takes place in federal court. It may not be right for everybody, but it can certainly help those who need to stop harassment from bill collectors and deal with their unsecured debt.
What is Bankruptcy Law in Texas?
Bankruptcy law refers to a set of laws that helps individuals pay creditors. Each case is different, and in each case, an individual has to undergo the process of filing a petition with the court after which a legal proceeding takes place to determine which type of bankruptcy should be used and how the debt will be handled. In some cases, individuals might get a homestead exemption where their house can't be liquidated, but they can liquidate all other assets to repay their loans. In other cases, a person might be required to undergo credit counseling as part of their legal obligation to get a better grip on their finances in the future.
What is the Purpose of Bankruptcy Law?
The purpose of bankruptcy is to help eliminate your legal obligation to repay some or all of your debt. When you are released from your legal obligation to repay debt, it is referred to as a discharge.
Bankruptcy can also stop a foreclosure on your mobile home or your house and give you a chance to catch up on your mortgage. It’s important to note that bankruptcy does not eliminate any mortgages or stop other liens on your property, but it can give you a chance to focus on repaying your mortgage as opposed to repaying your mortgage and 6 other types of unsecured debt.
Bankruptcy can prevent repossession of your property or your car and stop creditors who are harassing you or submitting legal actions to collect money from you. It can also stop creditors from trying to garnish your wages. If your utilities have been shut off or utility companies are threatening to shut off your service, bankruptcy can prevent this or restore it as necessary.
Limits to Texas bankruptcy laws
There are some limits to state bankruptcy laws. It's not a cure for every issue you have. For example, while bankruptcy can stop a foreclosure on your house, it doesn't stop you from having to repay your mortgage even if you are discharged of your debt. There are many types of secured debt, such as a car loan or a mortgage, that you still have to repay no matter what. However, bankruptcy can eliminate other obligations and help you negotiate a payment plan over a specific period of time.
Certain debts cannot be discharged, even through bankruptcy, such as student loans, criminal fines, and alimony. Another important thing to understand is that any cosigners on your loans may still be responsible for their portion of the bill, even if your debt is discharged through bankruptcy.
Filing for bankruptcy does not protect you against incurring future debt, so once you have filed and debt is discharged,you will be responsible for any indebt that you take on in the future.
Types of Bankruptcies in Texas
There are many different types of bankruptcy filings you can file, depending on your situation. Bankruptcy doesn't solve all your problems and it might not be the right solution for your situation, depending on the main cause of your financial struggles. If it is, you have to make sure that you choose the right chapter, and within that chapter, the right subchapters.
Chapter 7: Liquidation
This type of bankruptcy is for those people who are in the most dire of financial straits. This chapter is colloquially referred to as straight bankruptcy. This chapter requires the debtor to give up any and all property outside of those things which are legally exempt and then sell that property so that the money can be put toward debt. Once this is done, the rest of your debt is discharged and you are no longer required to repay it.
Chapter 13: Repayment Plan
This chapter of bankruptcy is more common for people who have some source of income. There are financial thresholds associated with liquidation, so it is only used by those who don't have any way to possibly repay their debt over the coming years. On the other hand, Chapter 13 is sometimes referred to as debt adjustment. This chapter is reserved for situations where a person is willing to repay their debt with their current income, but they may only be able to repay part of it.
For example, if the interest is so high that it represents more than twice the original debt you owe, a judge might decide that your repayment plan should only consist of the original debt, which could end up being a fraction of what you currently owe. This type of plan offers a chance to work with your creditors to repay your debt within a span of three or five years. There are very strict rules that must be followed, and all payments must be made in a timely fashion. Otherwise, your case will get thrown out, and you will be required to repay your debt in full. This is one of the most common types of bankruptcy for individuals and married couples.
Chapter 11: Large Reorganization
Chapter 11 is sometimes referred to as reorganization, and it is typically used for small business owners and companies or individuals with very large debt. It is designed to help reorganize or restructure the way the business is run, reducing expenses and freeing up capital that can be used to repay some debt. This might include credit counseling, liquidation of assets, or a repayment plan.
Chapter 12: Family Farmers
Chapter 12 is similar to Chapter 11 in terms of what can transpire and the flexibility it affords. Both Chapter 11 and Chapter 12 allow a business to remain operational while the restructuring is taking place so that they don't have to close doors. This allows them to continue to operate and make money that they can then use to repay their debt.The primary difference between Chapter 11 and Chapter 12 is that Chapter 12 applies specifically to family farmers.
The four chapters listed above are the most common types of bankruptcy for US citizens or businesses. Of those, Chapter 7 and Chapter 13 are the most common for individuals and married couples. However, there are a few more chapters out there.
Chapter 15: Used in Foreign Cases
Chapter 15 is reserved for people who are not US citizens but own property or have debt in the United States. A citizen of Australia, for example, might owe debt in the United States, but they are currently filing for bankruptcy back in Australia. They can use Chapter 15 to file for bankruptcy in the United States at the same time.
Chapter 9: Municipalities
Chapter 9 bankruptcy is utilized by municipalities. This is very similar to Chapter 11, but it applies specifically to municipalities which have to file for bankruptcy in their state. States cannot file for bankruptcy with the federal government, but municipalities can. The idea is to restructure or reorganize so that the municipality can get a better handle on the way it operates in order to successfully repay debt and stay out of debt in the future.
How to File for Bankruptcy in Texas?
- When you file for bankruptcy you can choose to work with an attorney from the very beginning or you can do it on your own. Regardless,you have to fill out a petition for the specific chapter of bankruptcy you are filing for.
- Next, you have to take that petition to the court and pay the filing fee.
- Once your petition is accepted, an automatic stay is placed on any of the debt you owe. This prevents creditors from taking any additional action to collect on that debt. At the same time, a bankruptcy trustee is appointed to your case. They act as a third party and will assist with negotiating to try to get as much money as they can for the creditors you owe.
- If you are filing for Chapter 7, your assets will be liquidated within a few months. With help from your bankruptcy trustee, you will then use that money to repay your creditors.
- If you are filing for Chapter 13, a repayment plan is agreed upon between yourself and all of your creditors. This agreement will be facilitated by the bankruptcy trustee. This is typically 3 or 5 years in length, and it includes strict parameters for what amount of money you have to repay to your creditors each month.
- Once you’ve successfully completed each aspect of your repayment or liquidation plan, a judge will review your case and discharge your remaining debt.
Texas bankruptcy exemptions
There are certain bankruptcy exemptions to anyone who is filing for Chapter 7 or Chapter 13. The most common one is called the homestead exemption, which allows you to keep some of the equity in your home. Other exemptions apply to professional tools, clothing, a vehicle (if it meets certain criteria), furniture, household appliances, and most of the items you need for work and for everyday life.