There are times when everyone needs help. Struggling with overwhelming debt can be frightening, and releasing this financial burden can herald a fresh start. Chapter 7 bankruptcy is one way to do that. However, Chapter 7 bankruptcy in Texas can be a complex process. For instance, not everyone is eligible. When filing for bankruptcy, you must have a solid understanding of what it entails and what you must do.
The Basics of Chapter 7 Bankruptcy
Chapter 7 bankruptcy is commonly called “liquidation bankruptcy.” It discharges most unsecured debts, relieving individuals who cannot meet their financial obligations. In Texas, as in other states, this process involves liquidating non-exempt assets to pay off creditors. However, many assets are exempt under Texas law, meaning you can keep them.
Benefits of a Chapter 7 Bankruptcy in Texas
Filing for a Chapter 7 bankruptcy in Texas can relieve the stress of paying debts you cannot afford. Here are some reasons to file, among others:
- Protection of property
- Discharge of personal loans, medical bills and credit card debt
- Protection of wages after filing
- Lack of a repayment plan
- Elimination of creditor lawsuits
- Protection of retirement accounts and social security benefits
Eligibility for Chapter 7 Bankruptcy in Texas
Not everyone is eligible for Chapter 7 bankruptcy in the state. To determine if you qualify, you must meet specific criteria, including:
- Median Income: First, you need to see if your income is above or below the median income for Texas residents. If it is below the median income, you qualify to file Chapter 7 bankruptcy. Conversely, if it is above the median income, you must proceed to the next step – the means test.
- Means Test: The means test adds debt into the mix to see if you can file for Chapter 7. You will compile your debt and subtract it from your gross income. If your income exceeds the medium amount, by doing this, you might then be below that level. If your income exceeds the median amount despite subtracting your debt, you might file for Chapter 13, which allows you to use the extra income to pay off your debt.
- Credit Counseling: When filing for Chapter 7 bankruptcy in Texas, you must complete a credit counseling course from an approved agency within 180 days. This course can help you explore alternatives to bankruptcy.
What Constitutes Income in a Chapter 7 Bankruptcy?
Income for the means test includes:
- Income from your business
- Stock dividends
- Income from rental property
- Retirement plans
- Social Security
- Unemployment income
- Payments received for household expenses, such as money for food from parents
- Child support
Where Do You Find Proof of Income?
Some places where you will find what you earned are:
- Recent tax returns
- Wage stubs
- Social Security documentation
- Alimony statements
- Child support documents
- Bank statements
- Contracts or leases
- Other financial transaction documents
Using Form 122A-1 and Form 122A-2 to Calculate Income Levels
Two forms help you calculate your income on the means test:
- Form 122A-1: This three-page form helps you calculate your income. It is relatively uncomplicated once the needed information is available. You list your income and, in some cases, your spouse’s.
- Form 122A-2: This nine-page form is more complicated to fill out. It helps you calculate your disposable income.
Both forms are signed and dated and become part of the bankruptcy paperwork.
Who Chooses a Trustee in a Chapter 7 Bankruptcy?
The bankruptcy court chooses the trustee, usually an officer of the United States Justice Department. Their primary role is to assess the debtor’s assets and liquidate the non-exempt ones. They focus on distributing the proceeds to creditors.
Filing the Chapter 7 Bankruptcy Petition
The next step is officially filing your Chapter 7 bankruptcy petition with the bankruptcy court. Here’s how to do it:
- Locate Your Local Bankruptcy Court: In Texas, you must file your bankruptcy petition with the United States Bankruptcy Court. Depending on where you reside in Texas, this could be for the Southern, Northern, Eastern, or Western District.
- Complete the Bankruptcy Forms: Complete various bankruptcy forms, including the petition, schedules, and statements. These forms require detailed information about your financial situation, such as your assets, liabilities, income, and expenses.
- Pay Filing Fees or Request a Fee Waiver: Filing for bankruptcy in Texas typically costs several hundred dollars. However, you can request a waiver if you cannot afford the fee. You do this by submitting the appropriate forms and demonstrating your inability to pay.
- Submit Your Bankruptcy Petition: File your completed bankruptcy forms and supporting documents with the bankruptcy court. You can file in person or electronically, depending on the court’s policies.
- Notify Creditors and the Trustee: Once your petition is filed, the court will notify your creditors and assign a bankruptcy trustee to oversee your case. The trustee will review your documents, conduct a meeting of creditors, and oversee the liquidation process if necessary.
The Automatic Stay
One of the significant benefits of filing for Chapter 7 bankruptcy is the automatic stay. An automatic stay goes into effect when you file your bankruptcy petition. This stay stops most creditors from attempting to collect debts, repossess property, or start legal proceedings against you. It also provides temporary relief in a stressful time. It lets you focus on your bankruptcy proceedings without persistent harassment from creditors.
The Meeting of Creditors
After filing your bankruptcy petition, you’ll need to attend an appointment of creditors, also known as a 341 meeting. This meeting typically occurs about 20-40 days after filing and is crucial to bankruptcy.
What Happens at the Meeting of Creditors?
The following occurs at this meeting:
- The person seeking bankruptcy, their attorney (if they have one), and their trustee are present at the 341 meeting.
- Creditors may attend but often do not.
- The trustee will ask the debtor about their financial situation, assets, and debts.
- The debtor must answer these questions truthfully under oath.
The meeting of creditors is an opportunity for the trustee to verify the accuracy of your bankruptcy documents and gather additional information. It is not a court appearance, and creditors usually do not attend.
Asset Liquidation and Exemptions
In a Chapter 7 bankruptcy, the trustee may liquidate non-exempt assets to pay off your creditors. Texas has generous exemptions that often protect your property from being sold. Common Texas exemptions include:
- Homestead exemption (protecting your primary residence) up to 100 acres in the country and ten or less in the city
- Personal property exemptions (protecting items like vehicles, clothing, and household goods such as appliances and furnishings)
- Retirement account exemptions (protecting certain retirement funds and public assistance)
- Wage and income exemptions (safeguarding a portion of your income)
- Alimony and child support, if you are receiving it
- Life insurance
- Social Security
- Compensation recovered in a personal injury case
You can discuss your exemptions with an experienced bankruptcy attorney to ensure your assets are adequately protected.
If everything goes smoothly and there are no objections from creditors or the trustee, you receive a discharge order from the court. This order legally eliminates your obligation to repay most of your debts. However, not all debts are dischargeable in bankruptcy, including:
- Child support and alimony, if you are paying
- Student loans (unless you can prove undue hardship)
- Some tax debts
- Debts incurred through fraud or criminal activity
Working with Warren & Migliaccio, L.L.P.
When searching for a bankruptcy lawyer, you want one who provides compassionate and experienced assistance. At Warren & Migliaccio, L.L.P., we do everything possible to eliminate the stress of filing for Chapter 7 bankruptcy. We help you when deciding if bankruptcy is right for you. It is a big but often necessary step. Don’t face the decision alone – call our bankruptcy lawyers at (888) 584-9614 to set up a consultation.
Frequently Asked Questions
Question: Does the amount of debt you have matter in a Chapter 7 Bankruptcy?
Answer: The amount of debt is not as relevant as the income you have to pay it off. Even a small debt is burdensome for some, necessitating filing for Chapter 7 bankruptcy.
Question: Will bankruptcy permanently ruin my credit?
Answer: Filing a Chapter 7 bankruptcy will not permanently ruin your credit. It usually falls off your credit report after ten years.