Answering Your Common Bankruptcy FAQs
When dealing with financial distress, bankruptcy often becomes a necessary option for individuals and businesses looking to find relief from overwhelming debt. However, the process can be complicated and filled with uncertainties. If you’re in Texas and considering bankruptcy, you probably have a lot of questions. This article addresses common FAQs about bankruptcy, aiming to provide clear and comprehensive answers to help you manage the process.
What Is Bankruptcy?
Bankruptcy is a legal process designed to help individuals or businesses who can't pay their debts. When you file for bankruptcy, it can provide a fresh start by either discharging some or all of your debts or creating a repayment plan to make your financial situation more manageable. The bankruptcy process is governed by federal law, though certain details can vary by state, including Texas.
What Types of Bankruptcy Are Available?
In the United States, there are several types of bankruptcy, but the most commonly filed are Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, often called "liquidation bankruptcy," is typically for individuals who don’t have the means to repay their debts. In this process, a trustee is appointed to sell off non-exempt assets to pay creditors. Most unsecured debts, such as credit card balances and medical bills, can be discharged, meaning you won’t have to repay them. However, some debts, like student loans and child support, generally cannot be discharged.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, or "reorganization bankruptcy," is for individuals with a regular income who can pay back a portion of their debts over time. It allows you to keep your property and catch up on overdue payments through a structured repayment plan that lasts three to five years. Unlike Chapter 7, you don't have to sell your assets, but you must adhere to a court-approved repayment plan.
How Does Bankruptcy Affect My Credit Score?
Filing for bankruptcy will have a significant impact on your credit score. Generally, a bankruptcy will stay on your credit report for up to 10 years, depending on the type of bankruptcy you file. This can make it more difficult to obtain credit in the future. However, many people find that their credit score begins to improve once they complete the bankruptcy process and start to rebuild their financial history with responsible credit use.
What Are the Eligibility Requirements for Bankruptcy?
Eligibility for bankruptcy depends on several factors and varies between Chapter 7 and Chapter 13.
Chapter 7 Eligibility
To qualify for Chapter 7 bankruptcy, you must pass the "means test," which assesses your income compared to the median income in Texas for a household of your size. If your income is below this median, you generally qualify. If it's above, the court will look at your disposable income to determine if you can repay some of your debts.
Chapter 13 Eligibility
For Chapter 13 bankruptcy, you must have a regular income, and your unsecured debts must be below a certain threshold ($465,275) and secured debts must be below another limit ($1,395,875), according to the United States Bankruptcy Court. These amounts are subject to change, so it’s important to check the current limits. Additionally, you must be able to propose a feasible repayment plan.
Will I Lose All My Property If I File for Bankruptcy?
One of the biggest concerns for individuals considering bankruptcy is the fear of losing all their property. The good news is that not all property will be lost. Bankruptcy laws provide for exemptions that allow you to keep certain types of property. In Texas, exemptions include:
Homestead Exemption: Protects the value of your primary residence up to a certain amount. In Texas, there's no cap on the amount of land covered, but it must be your primary residence.
Personal Property Exemptions: Allows you to keep items like clothing, household goods, and tools up to a certain value.
Vehicle Exemption: Lets you keep a vehicle with equity up to a specified amount.
Retirement Accounts: Most retirement accounts are protected under federal law.
The specifics can vary based on the type of bankruptcy and other factors, so it’s crucial to consult with a bankruptcy attorney to understand how exemptions apply to your situation.
Can Bankruptcy Stop Foreclosure or Repossession?
Yes, filing for bankruptcy can stop foreclosure or repossession temporarily. When you file for bankruptcy, an "automatic stay" goes into effect, which halts most collection actions against you. This includes foreclosure proceedings and repossession actions.
Chapter 7 Bankruptcy
In Chapter 7, the automatic stay provides temporary relief from foreclosure. However, it might only delay the process rather than stop it permanently, especially if you can’t catch up on missed payments.
Chapter 13 Bankruptcy
In Chapter 13 bankruptcy, the automatic stay provides more substantial relief by allowing you to propose a repayment plan that can include catching up on missed mortgage payments over time. This gives you the opportunity to save your home if you follow the repayment plan and meet all its terms.
Will Bankruptcy Affect My Job?
In most cases, filing for bankruptcy will not affect your job. Federal law prohibits discrimination by employers based solely on bankruptcy filings. However, if you’re in a position that involves handling money or sensitive financial information, such as a financial advisor or certain government jobs, bankruptcy might affect your employment. It’s always a good idea to review your specific job requirements and consult with your employer if you have concerns.
Can I File for Bankruptcy Without a Lawyer?
While it's legally possible to file for bankruptcy without a lawyer, it’s not recommended due to the difficulty of the process. Bankruptcy laws are intricate, and mistakes can have serious consequences. A bankruptcy attorney can help you manage the paperwork, make sure that all necessary documents are filed correctly, and represent your interests throughout the process.
Benefits of Hiring a Bankruptcy Attorney
Expertise: Bankruptcy attorneys have extensive knowledge of bankruptcy laws and can provide advice tailored to your situation.
Accuracy: They help to see that all forms and documents are completed accurately and submitted on time.
Representation: An attorney can represent you in court and handle communications with creditors, which can help alleviate stress and confusion.
How Long Does the Bankruptcy Process Take?
The length of the bankruptcy process can vary depending on the type of bankruptcy and your specific circumstances.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy typically takes about three to six months from the time you file to the discharge of your debts, as found by Debt.org. The process is generally quicker because it involves liquidating assets and discharging debts without a repayment plan.
Chapter 13 Bankruptcy
Nolo states that Chapter 13 bankruptcy usually takes three to five years, as it involves creating and following a repayment plan to pay back part or all of your debts. The duration depends on the length of your repayment plan, which is based on your income and debt levels.
What Happens After My Bankruptcy Is Discharged?
Once your bankruptcy is discharged, your eligible debts are eliminated, and you should start to see improvement in your financial situation. You’ll need to start rebuilding your credit by paying bills on time, maintaining low credit card balances, and monitoring your credit reports regularly to guarantee accuracy.
It's important to keep in mind that while bankruptcy provides relief, it also requires a commitment to financial management going forward. With responsible behavior, you can recover from bankruptcy and work toward achieving long-term financial stability.
Reach Out to an Experienced Attorney Today
Bankruptcy can offer a path out of financial turmoil, but it’s essential to fully understand the process and how it will impact your life. Whether you’re considering Chapter 7 or Chapter 13 bankruptcy, the key is to seek knowledgeable advice and make informed decisions. In Texas, the specific details of bankruptcy law and exemptions can affect how your case unfolds, so working with a bankruptcy attorney can be particularly beneficial.
By addressing your common questions about bankruptcy, this guide aims to help you feel more confident as you manage this challenging time and take steps toward financial recovery. If you live in the Houston, Texas area, our team at Webb & Associates is here to help you through the bankruptcy process. We also service the surrounding areas including Harris County, Sugar Land, Katy, Galveston County, Cypress, Fort Bend County, Waller County, and Brazoria County. We look forward to working with you!