Bankruptcy Questions
Frequently-Asked Questions by Bankruptcy Clients
- What is Bankruptcy?
- What Can Bankruptcy Do for Me?
- What Bankruptcy Cannot Do
- What Different Types of Bankruptcy Cases Should I Consider?
- What Property Can I Keep?
- What Does It Cost to File for Bankruptcy?
- How Can I Afford to Pay the Attorney's Fees if I am Bankrupt?
- What Will Happen to My Home and Car If I File for Bankruptcy?
- Can I Own Anything After Bankruptcy?
- Will Bankruptcy Wipe Out All of My Debts?
- Will I Have to Go to Court?
- Will Bankruptcy Affect My Credit?
- What Else Should I Know?
- How Do I Find a Bankruptcy Attorney?
Bankruptcy is a legal proceeding in which people who are unable to pay their bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops your creditors from seeking to collect debts from you, at least until your debts are sorted out according to law.
Bankruptcy may make it possible for you to:
- Eliminate the legal obligation to pay most or all of your debts. This is called a "discharge" of debts. It is designed to give you a fresh financial start.
- Stop foreclosure on your home and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)
- Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed (deadlines apply).
- Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
- Restore or prevent termination of utility service.
- Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.
Bankruptcy cannot, however, cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:
- Eliminate certain rights of "secured" creditors. A "secured" creditor has taken a mortgage or other lien on property as collateral for the loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money if your property is taken. Nevertheless, you generally cannot keep the collateral unless you continue to pay the debt.
- Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, student loans, court restitution orders, criminal fines, and some taxes.
- Protect cosigners on you debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.
- Discharge debts that arise after bankruptcy has been filed.
There are four types of bankruptcy cases provided under the law:
- Chapter 7 is known as "straight" bankruptcy or "liquidation." It requires an individual to give up property which is not "exempt" under the law, so the property can be sold to pay creditors. Generally, those who file Chapter 7 keep all of their property except property which is very valuable or which is subject to a lien which they cannot avoid or afford to pay.
- Chapter 11 (known as reorganization) is used by businesses and a few individuals whose debts are very large.
- Chapter 12 is reserved for family farmers and fishermen.
- Chapter 13 is a type of "reorganization" used by individuals to pay all or a portion of their debts over a period of years using their current income.
Most people filing bankruptcy will want to file under either Chapter 7 or Chapter 13. Either type of case may be filed individually or by a married couple filing jointly.
Chapter 7 (Straight Bankruptcy)
In a bankruptcy case under Chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a Chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for "exempt" property, which the law allows you to keep. In most cases, all of your property will be exempt. In the relatively few consumer cases where there is non-exempt property, the property is sold, with the money distributed to creditors.
If you want to keep property like a home or a car, but are behind on the payments on a mortgage or car loan, a Chapter 7 case probably will not be the right choice for you. That is because Chapter 7 bankruptcy generally does not eliminate or reorganize the rights of mortgage holders or car loan creditors. If you fit this situation a Chapter 13 may be a more attractive alternative.
If your income is above the median family income in your state, you may have to file a Chapter 13 case (The Texas median family income for a family of four in 2011 was $65,477 – this number is adjusted periodically). Higher-income consumers must fill out "means test" forms requiring detailed information about their income and expenses. If the forms show, based on standards in the law, that they have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that they can not file a Chapter 7 case, unless there are special extenuating circumstances.
Chapter 13 (Reorganization)
In a Chapter 13 case you file a "plan" showing how you will pay off some of your past-due and current debts over the next three to five years. The most important thing about a Chapter 13 case is that it will allow you to keep valuable property--especially your home and vehicle--which might otherwise be lost, as long as you can make the payments which the bankruptcy law requires to be made to your creditors. In many cases, Chapter 13 functions as a bill consolidation of secured debts.
You should consider filing a Chapter 13 plan if you:
- own your home and are in danger of losing it because of money problems
- are behind on debt payments, but can catch up if given some time
- have valuable property which is not exempt, but you can afford to pay creditors from your income over time
You will need to have enough income in Chapter 13 to pay for your necessities and to keep up with the required payments as they come due.
In a Chapter 7 case, you can keep all property which the law says is "exempt" from the claims of creditors. You can choose between your exemptions under your state law or federal law. In many cases, the federal exemptions are better.
| 11 U.S.C. §522 |
Single Debtor |
Married Couple |
Exemption |
| (d)(1) |
$21,625.00 |
$43,250.00 |
Homestead (Must be residence) |
| (d)(2) |
$3,450.00 |
$6,900.00 |
Vehicles |
| (d)(3) |
$11,525.00 |
$23,050.00 |
Household Goods, Books, Animals
no more than $525 per item |
| (d)(4) |
$1,450.00 |
$2,900.00 |
Jewelry |
| (d)(5) |
$1,150.00 |
$2,300.00 |
In any property, plus part of the unused exemption in your home, up to $10,300 |
| (d)(6) |
$2,175.00 |
$4,350.00 |
Tools of the trade (including work vehicle) |
| (d)(7) |
100% |
100% |
Life insurance contract |
| (d)(8) |
$11,525.00 |
$23,050.00 |
Loan value against life insurance (minus premiums) |
| (d)(9) |
100% |
100% |
Health Aides |
| (d)(10)(A) |
100% |
100% |
Social Security & Unemployment |
| (d)(10)(B) |
100% |
100% |
Veterans Benefits |
| (d)(10)(C) |
100% |
100% |
Disability |
| (d)(10(D) |
100% |
100% |
Alimony, Child Support (to the extent reasonably necessary) |
| (d)(10)(E) |
100% |
100% |
Government benefits & pension, IRA, 401k & retirement (to the extent reasonably necessary) unless insider setup. |
| (d)(11)(A) |
100% |
100% |
Restitution for benefit as a victim |
| (d)(11)(B) |
100% |
100% |
Payment for wrongful death of a dependent (to the extent reasonably necessary) |
| (d)(11)(C) |
100% |
100% |
Life insurance from death of person to which the debtor was a dependent (to the extent reasonably necessary) |
| (d)(11)(D) |
$21,625.00 |
$43,250.00 |
Personal injury cases (does not include pain & suffering or loss of income) |
| (d)(11)(E) |
100% |
100% |
Payment of settlement due to loss of income, (to the extent reasonably necessary) |
| Description of Property |
State of Exemption
Statute |
Limit |
| Homestead. 200 acres for family(100 acres single adult) of rural land OR ten acres of urban land (land may be in one or more parcels and improvements are included; no value limit) |
Const.Art. 1 Secs. 50,51/Property Code Sec 41.001, 41.002 |
100%, subject to some limitations. |
| Proceeds of voluntary sale of homestead (protected for 180 days after sale). |
Texas Property Code Sec. 41.001(a) |
100% |
| Lots held for burying grounds. |
Texas Property Code Sec. 41.001(a) |
100% |
| Home furnishings, include family heirlooms. |
Texas Property Code Secs. 42.001(a), 42.002(a)(1) |
$30,000.00 per debtor for all of Sec. 42.002(a) |
| Provisions for consumption |
Texas Property Code Secs. 42.001(a), 42.002(a)(2) |
$30,000.00 per debtor for all of Sec. 42.002(a) |
| Farming or ranching vehicles and implements. |
Texas Property Code Secs. 42.001(a), 42.002(a)(3) |
$30,000.00 per debtor for all of Sec. 42.002(a) |
| Tools, equipment, books and apparatus used in trade or profession |
Texas Property Code Secs. 42.001(a), 42.002(a)(4) |
$30,000.00 per debtor for all of Sec. 42.002(a) |
| Wearing apparel |
Texas Property Code Secs. 42.001(a), 42.002(a)(5) |
$30,000.00 per debtor for all of Sec.42.002(a) |
| Jewelry ($7,500.00/$15,000.00 Limit in addition to group limit of $30,000.00/$60,000.00). Only the group limit will be calculated. |
Texas Property Code Secs. 42.001(a), 42.002(a)(6) |
$30,000.00 per debtor for all of Sec.42.002(a) |
| Two firearms |
Texas Property Code Secs. 42.001(a), 42.002(a)(7) |
$30,000.00 per debtor for all of Sec. 42.002(a) |
| Athletic and sporting equipment, including bicycles. |
Texas Property Code Secs. 42.001(a), 42.002(a)(8) |
$30,000.00 per debtor for all of Sec.42.002(a) |
| One motor vehicle (2,3 or 4 wheeled) for debtor with drivers license or driver. |
Texas Property Code Secs. 42.001(a), 42.002(a)(9) |
$30,000.00 per debtor for all of Sec.42.002(a) |
| 2 horses, mules or donkeys plus a saddle, blanket and bridle for each, 12 head of cattle, 60 head of other types of livestock, 120 fowl, forage on hand for each animal. |
Texas Property Code Secs. 42.001(a), 42.002(a)(10) |
$30,000.00 per debtor for all of Sec. 42.002(a) |
| Household pets |
Texas Property Code Secs. 42.001(a), 42.002(11) |
$30,000.00 per debtor for all of Sec. 42.002(a) |
| Present value of life insurance policy payable to family member or dependent. |
Texas Property Code Secs. 42.001(a), 42.0021(a)(12) |
$30,000.00 per debtor for all of Sec. 42.002(a) |
| Unpaid commissions for personal services. (Subject to an additional limit of $7,500.00 per debtor) |
Texas Property Code Sec. 42.001(d) |
$30,000.00 per debtor for all of Sec. 42.002(a) |
| Professionally prescribed health aids. |
Texas Property Code Sec. 42.001(b)(2) |
100% |
| Current wages for personal services. |
Texas Property Code Sec. 42.001(b)(1) |
100% |
| Proceeds of property of I.R.C. qualified personal or corporate retirement plans. |
Texas Property Code Sec. 42.0021 |
100% |
| Partner's interest in partnership property. |
VACS Art. 6132b, sec. 25 |
100% |
| Employees group life insurance benefits & contributions |
Texas Insurance Code Art. 3.50-2, Sec.10, Art. 3.50 |
100% |
| Benefits paid under life, health or accident insurance policies. |
Texas Insurance Code Art. 21.00, Sec. 1 |
100% |
| Fraternal Benefits Society Benefits |
Texas Insurance Code Art. 10.28 |
100% |
| Unemployment compensation benefits. |
VACS Art.5221b-1(c) |
100% |
| Workers compensation benefits |
VACS Art. 8306, Sec.3 |
100% |
| Public Assistance benefits. |
Texas Humble Residents Code Sec. 31-040 |
100% |
| Medical assistance payments to needy. |
Texas Humble Residents Code Sec. 32-036 |
100% |
| State employees retirement and pension benefits. |
VACS Title 110B, Sec. 21.005 |
100% |
| Judicial system retirement benefits. |
VACS Title 110B, Sec. 41.004 |
100% |
| Law enforcement officers' survivors' benefits |
Vacs Art. 6228f, Sec.8 |
100% |
| County & District employees pension and retirement benefits. |
VACS Title 110B, Sec. 51.006 |
100% |
| Municipal employees retirement benefits. |
VACS Title 110B, Sec. 61.006; Art. 6243g Sec. 20 |
100% |
| Police, fireman & fire alarm operators pension, relief & retirement benefits. |
VACS Art. 6243a Sec. 12 to 20 and 6243a-6243-j |
100% |
| Teachers pension & retirement benefits. |
VACS Title 110B, Sec. 31.005 |
100% |
| Crime victims compensation. |
VACS Art. 8309-1, Sec. 7(f) |
100% |
| Public School employees insurance benefits and contributions |
Texas Insurance Code Sec. 3.50-4(11) |
100% |
| Foreign Service Retirement and disability benefits. |
22 U.S.C. Sec. 1104 |
100% |
| Social Security Benefits (include retirement, death and disability benefits). |
42 U.S.C. Sec. 407 |
100% |
| Injury or death compensation payments from war risk hazards |
42 U.S.C. Sec. 1717 |
100% |
| Wages due masters, seamen and apprentices. |
46 U.S.C. Sec. 601 |
100% |
| Civil service retirement benefits. |
5 U.S.C. Secs. 719,2265 |
100% |
| Longshoreman and harbor workers medical, disability and death benefits. |
33 U.S.C. Sec. 916 |
100% |
| Railroad employees retirement and disability annuities. |
45 U.S.C. Sec. 228(l) |
100% |
| Veteran's group life insurance benefits. |
38 U.S.C. Sec. 770(g) |
100% |
| Veteran's Administration benefits (includes pension, life insurance and disability benefits ). |
38 U.S.C. Sec. 3101 |
100% |
| Federal homestead lands and debts contracted before insurance of the patent |
43 U.S.C. Sec. 175 |
100% |
In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth now. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement.
You also only need to look at your equity in property. This means that you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $50,000 house with a $40,000 mortgage, you count your exemptions against the $10,000 which is your equity if you sell it.
While your exemptions allow you to keep property even in a Chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. In a Chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law.
In most cases you will have to pay the mortgages or liens as you would if you didn't file bankruptcy.
The court costs are $299 to file for bankruptcy under Chapter 7 or $274 to file bankruptcy under Chapter 13, whether for one person or a married couple. Attorney's fees vary, depending on the complexity of the case. However, it is customary for the law firm of Packard LaPray to charge a total attorney's fee of $2,000 for a typical Chapter 7 case and $3,000 for a typical Chapter 13 case.
This is a very common question, and, fortunately, there are some good answers. Many bankruptcies are not filed on an emergency basis. You may retain your attorney by paying a small down payment, while your case is being prepared. When you are ready to file, your case is prepared and all or most of the fee is paid, the case may be filed. Until that time, you will have been represented during the planning process. Many cases are filed for emergency reasons such as to stop a foreclosure or repossession threat. Fortunately, in these Chapter 13 cases you may pay a very small portion of the fee down (usually $500), with the balance to be paid in your monthly plan payment. In other words, your attorney fee is "consolidated" with your other debts and paid over a 36 to 60 month period. These arrangements make paying attorney's fees in bankruptcy much more realistic.
In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in Chapter 13.
However, some of your creditors may have a "security interest" (or lien) in your home, automobile, or other personal property. This means that you gave the creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not make these security interests go away. If you don't make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.
There are several ways that you can keep collateral or mortgaged property after you file bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Often, you are given the right to pay the value of the collateral even if it is much less than what is owed. In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt. If you put up your household goods as collateral for a loan (other than a loan to purchase the goods), you can usually keep your property without making any more payments on that debt.
Yes! Many people believe that they cannot own anything for a period of time after filing for bankruptcy. This is not true. You can keep your exempt property and anything you obtain after the bankruptcy is filed. However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors if the property or money is not exempt.
Yes, with some exceptions. For example, bankruptcy will not normally wipe out:
- Money owed for child support or alimony
- Most fines and penalties owed to government agencies
- Most taxes and debts incurred to pay taxes which can not be discharged
- Student loans, unless you can prove to the court that repaying them will be an "undue hardship"
- Debts not listed on your bankruptcy petition
- Loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan
- Debts resulting from "willful and malicious" harm
- Debts incurred by driving while under the influence
- Mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor)
In most bankruptcy cases, you only have to go to a proceeding called the "meeting of creditors" to meet with the bankruptcy trustee and any creditor who chooses to come. Most of the time, this meeting will be a short, simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation.
It is rare to have to appear before a judge at a hearing. This will only happen if complications arise, or if you choose to dispute a debt. If you need to go to court, you will receive notice of the court date and time from the court and/or from your attorney.
What Else Must I Do to Complete My Case?
Before your case is final you will need to take a financial management course online, by phone, or in person. This course will take approximately two hours to complete. Your attorney can give you a list of organizations that provide approved courses, or you can check the website for the United States Trustee Program office at www.usdoj.gov/ust. If you can not afford the fee, you should ask the agency to provide the course free of charge or at a reduced fee. In a Chapter 7 case, you should sign up for the course soon after your case is filed. If you file a Chapter 13 case, you should ask your attorney when you should take the course. Usually the course costs less than $50.
Yes. The fact that you've filed for bankruptcy can appear on your credit record for up to ten years. Realistically, however, if you are behind on your bills, and especially if you have mounting credit card debt, your credit may already be poor or bad. In such cases, the better question may be to ask: "How important is my credit at this stage?" Since bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills. After your discharge, you are legally permitted to borrow money, if desired, and there are a variety of methods to gradually restore creditworthiness after bankruptcy.
Utility services - Public utilities, such as the electric company, cannot turn your service off simply because you have filed for bankruptcy. However, the utility can require a deposit for future service and you do have to pay bills which arise after bankruptcy is filed.
Discrimination - An employer or government agency cannot discriminate against you because you have filed for bankruptcy.
Driver's license - If you lost your license solely because you couldn't pay court-ordered damages caused in an accident, bankruptcy will allow you to get your license back.
Co-signers - If someone has co-signed a loan with you and you filed for bankruptcy, the co-signer may have to pay the debt. If you file a Chapter 13, you may be able to protect co-signers, depending upon the terms of your Chapter 13 plan.
As with any area of the law, it is important to carefully select an attorney who will respond to your personal situation. The attorney should not be too busy to meet you individually and to answer questions. The best way to find a trustworthy bankruptcy attorney is to seek recommendations from trusted family, friends or other members of the community. You should carefully read retainers and other documents the attorney asks you to sign. You should not hire an attorney unless he or she agrees to represent you throughout the case.
When first meeting a bankruptcy attorney, you should be prepared to answer the following questions:
- What types of debt are causing you the most trouble?
- What are your significant assets?
- How did your debts arise and are they secured?
- Is any action about to occur to foreclose or repossess property or to shut off utility service?
- What are your goals in filing the case?
Can I File Bankruptcy Without An Attorney?
Although it may be possible for some people to file a bankruptcy case without an attorney, it is not a step to be taken lightly. The process is difficult and you may lose property or other rights if you do not know the law. It takes patience and careful preparation. Chapter 7 (straight bankruptcy) cases are somewhat easier. We have observed that very few people have been able to successfully file Chapter 13 (reorganization) cases on their own. I personally have never witnessed a successful Chapter 13 in court since 2005 by individuals that filed without an attorney.
Remember: The law often changes. Each case is different. This site is meant to give you general information and not to give you specific legal advice. Contact us for details.
This firm is a debt relief agency as described under federal bankruptcy laws.
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