If you live in Texas and are considering filing for bankruptcy, then you are at the crossroads of a major, life-altering decision you really need to understand before making it. To help you, we have compiled a list of eleven questions that we think anyone considering filing bankruptcy in Texas should ask themselves. By understanding the answers to these questions, you can determine which chapter of bankruptcy is best suited for your situation and assess whether filing for bankruptcy is a viable option.
We understand the challenges of having too much debt, and we have walked our clients through bankruptcy on many occasions, so we know what you are going through. You no doubt have a lot of questions, so ideally we will be able to address them here and help you make the right decision for you and your family.
Which bankruptcy options are available?
There are two main types of bankruptcy available to consumers in Texas:
- Chapter 7: This type of bankruptcy is intended for people with little or no income. This type of bankruptcy involves the liquidation of most assets to pay off debts. This plan offers individuals a fresh start since most of the debt is wiped out.
- Chapter 13: This is the type of bankruptcy for people with a steady flow of income. It gives people the chance to reorganize their debts under the supervision of a trustee, and you pay a portion of the debt over the course of 3–5 years. Under this plan, a person can live in their home, drive their car, and keep their assets while repaying their debt.
Which type of bankruptcy is the best option?
To determine which type of bankruptcy may be right for you, ask yourself the following questions:
- Am I able to meet my financial obligations and keep up with my monthly payments with my current income? If yes, Chapter 13
- Am I currently unemployed or have little to no income? Chapter 7:
- Do I have the ability to catch up on mortgage/car payments or other secured payments? If yes, generally, Chapter 13
- Do I have a lot of credit card debt that I could pay off with a Chapter 7 bankruptcy but risk losing my house or car? Or am I “upside down,” meaning I owe much more on my loans than they are worth? Chapter 7
If I file for bankruptcy, what will happen to my property and assets?
In Chapter 7, you may be required to sell some of your assets to repay creditors, but you are entitled to certain property exemptions under both federal and Texas law. Texas laws are pretty generous as compared with other states in terms of the assets you can exempt.
For example, the Texas homestead exemption permits you to exempt property up to 10 acres in an incorporated municipality (such as a town) and up to 100 acres outside incorporated areas (such as a rural county), your home, and up to the value of one automobile per adult driver in the household, and other personal property up to $100,000 per household. You might be able to exempt the value of your retirement accounts, life insurance, annuities and other property. Check with an experienced Texas bankruptcy attorney to inquire about all the exemptions allowed in your state.
Will filing for bankruptcy provide relief from creditor harassment and collection efforts?
Yes. This is a key advantage of filing for bankruptcy. By filing, an automatic stay goes into effect, preventing creditors from contacting you, repossessing your property, or collecting on your debts. Any wage garnishment or similar gathering attempts will cease.
Which debts will be discharged in bankruptcy?
The benefit of bankruptcy is that it grants you a fresh start by eliminating many of your debts. But that doesn’t mean you can escape all of your debts. Some are non-dischargeable, meaning you can’t get out of them, regardless of whether or not you file bankruptcy. Here are some common kinds of non-dischargeable debts:
- child support and
- alimony payments,
- certain tax debts,
- student loans (in most cases), and
- debts incurred as a result of fraudulent activity.
If you have any dischargeable debts, Chapter 7 will erase them and free up some additional funds to help pay for any non-dischargeable debt you may have. Chapter 13 will allow you to reorganize your debt and create a more manageable plan to pay it off over time.
What are the Texas bankruptcy eligibility requirements?
A person must pass a “means test,” which is an evaluation of a person’s income level in comparison to the median income level of the state in which the person resides. If a person’s income is less than the state median, they may qualify for Chapter 7 bankruptcy. If they do not pass this income restriction, they are not eligible for Chapter 7 and must instead file for Chapter 13. As of the beginning of 2024, the median household income in Texas stood at $66,963. Since median state income is constantly changing and varies with the number of members in the household, those considering filing for bankruptcy should first check with a qualified bankruptcy attorney to determine eligibility.
How long does the bankruptcy process typically take in Texas?
The length of the bankruptcy process in Texas will depend on the type of bankruptcy you file. Most likely, it will fall in the range of three to six months for a Chapter 7 case and three to five years for a Chapter 13. The process requires you to file a bankruptcy petition, complete a credit counseling course, and submit all the necessary financial documentation.
If you file for Chapter 7, you’ll attend a meeting with your creditors, and you must submit to answering questions under oath. In a Chapter 7 case, you could receive a discharge of your debts at the end of that case. You may have to stay in Chapter 13 bankruptcy for the full three to five years because you have to make payments according to a plan your bankruptcy lawyer submitted on your behalf. Your attorney will be able to get more specific on the timeframe for your particular case based on the type of bankruptcy you file and the specifics of your case.
Does filing for bankruptcy in Texas impact my credit score?
This is a valid and reasonable question. Maybe the first thing you should ask yourself is this: if you decide not to file for bankruptcy, how will your credit score look? If your finances are in such bad shape that you are considering bankruptcy, your credit score is almost certainly going to worsen, with little chance of improving. Even if your credit score drops after filing bankruptcy, once your bankruptcy is completed, you can begin rebuilding your credit, and in a few years it will be much higher than it would have been otherwise.
How long does a bankruptcy stay on my credit report?
A bankruptcy will typically remain on your credit report for seven to ten years. During this time, it can negatively impact your credit score, making it difficult for you to get loans, obtain credit, or even find a job. Nevertheless, after filing for bankruptcy, you should take steps to rebuild your credit by managing your money wisely and paying off any outstanding debts on time. It will take time, but with some hard work and patience, you will be able to rebuild your credit and improve your financial situation.
If I declare bankruptcy in Texas, can I still keep my house and car?
Texans who obtain bankruptcy protection can keep their home under the Texas Homestead exemption. There is no value limit on the homeowner exemption. Vacation homes or rental properties are non-homestead properties and would almost certainly have to be sold or liquidated.
Texas has a generous motor vehicle exemption, allowing you to exempt the full value of one motor vehicle per licensed household member. You are, however, limited to a total personal property exemption of either $50,000 or $100,000 (individual/household), which includes your vehicles. So, for example, if the combined value of your household vehicles was $70,000, you would be allowed to keep them but would only have $30,000 left over for other assets.
If you’re financing a vehicle, your vehicle might not be exempt from repossession if you have a lien on it. If you are currently on your car loan payments, you may be able to keep your vehicle and continue making timely payments. If you fall behind on car loan payments, the creditor has the right to take away your car to satisfy your debt.
Can I file for bankruptcy without an attorney?
Though challenging and potentially risky, filing for bankruptcy without an attorney is possible. Most people choose to file with a lawyer to protect their assets and ensure all forms are properly filed. Due to their experience and familiarity with local laws and procedures, bankruptcy attorneys can assist you in obtaining the best outcomes. The bankruptcy court cannot advise you or help you complete paperwork, so it is highly recommended to have experienced legal representation to protect your interests.
Reach Out To Texas Bankruptcy Attorney Ted Machi & Associates, P.C., To Schedule A Free Consultation
We are very aware of the stress and anxiety that can accompany the prospect of bankruptcy. Money has an impact on every aspect of our lives, and being in a state of perpetual debt affects everything else, including the nature and quality of our relationships with others and our physical health. Living with the fear and burden of debt can be an extraordinarily difficult thing to endure and to live with. You do not have to face that journey on your own. Our firm has helped many clients navigate a smooth bankruptcy experience. We would like to learn about your situation and give you the help that you need. If you are considering bankruptcy, contact our firm today to schedule a free consultation with one of our experienced and compassionate attorneys.