Bankruptcy FAQs: Understanding Your Options

Who Qualifies for Chapter 7 Bankruptcy?

To qualify for Chapter 7 bankruptcy, you must meet two main criteria:

  1. Time Requirements
  • You cannot have received a discharge from a previous Chapter 7 bankruptcy within the last 8 years
  • You cannot have received a discharge from a previous Chapter 13 bankruptcy within the last 6 years
  1. The Means Test Introduced in 2005 with the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCA), the Means Test determines eligibility based on financial status:
  • Your income is compared to the median income in your geographic region for a household of the same size
  • Adjustments may be made for significant medical costs, child education expenses, and similar circumstances
  • To qualify, your adjusted income must fall below the median income for comparable households in your area

What Assets Can I Keep in Chapter 7 Bankruptcy?

Contrary to common belief, most people filing for Chapter 7 bankruptcy keep all of their property. In Texas, you can choose between:

Texas State Exemptions

  • Asset-based protections
  • Special provisions for homes, vehicles, firearms, and livestock
  • No "wildcard" deduction

Federal Exemptions

  • Value-based protections
  • Includes a "wildcard" deduction that can be applied to any asset

Who Should Consider Chapter 7 Bankruptcy?

While there's no minimum debt requirement, we generally recommend considering Chapter 7 if you have at least $10,000 in outstanding unsecured debt. People file for various reasons, including:

  • Managing overwhelming debt
  • Positioning for major purchases like a home
  • Meeting employment requirements for security clearances

The best way to determine if bankruptcy is right for you is to schedule a free consultation with an experienced bankruptcy attorney.

How Chapter 13 Can Prevent Foreclosure?

A Chapter 13 bankruptcy filing can immediately stop foreclosure proceedings if filed before the scheduled foreclosure date. In Texas:

  • Creditors must provide at least 20 days' notice before a foreclosure sale
  • Foreclosure sales occur on the first Tuesday of each month
  • Filing creates an "automatic stay" that legally halts the foreclosure process

This same automatic stay can also prevent:

  • Property repossession
  • Eviction
  • Wage garnishment
  • Account garnishment

The Chapter 13 Plan of Reorganization

Every Chapter 13 bankruptcy requires a Plan of Reorganization that:

  • Runs for 3 to 5 years (never longer than 5 years)
  • Is reviewed by a court-appointed trustee and creditors
  • Demonstrates all available disposable income is being used to repay creditors

Repayment amounts typically range from 1-2% up to 100% of the total debt. The required repayment amount depends on your household income compared to the median income for similar households in your area. The further above the median income, the higher the required repayment percentage.

The Confirmation Process

Your Plan may face objections from creditors, usually when they believe:

  • The proposed payment amount is insufficient
  • Certain income deductions are unreasonable
  • Non-exempt property exists
  • The debt amount or interest rate is incorrectly stated

Your attorney will negotiate with creditors or present arguments in court as needed. Once all objections are resolved, your Bankruptcy Plan can be confirmed.

Managing Your Chapter 13 Bankruptcy

After Plan approval:

  • You must make all scheduled payments
  • The Trustee may arrange for automatic deductions from your paycheck
  • You remain responsible for ensuring all payments are made
  • You must inform the Trustee of substantial changes in income or household size
  • You must provide annual tax returns to the Trustee's office

Upon successful completion of your payment plan, any remaining unsecured debt will be discharged. Your home and vehicle payments will be current, positioning you for improved financial stability.

Need more information? Contact our office today to schedule a free consultation with an experienced bankruptcy attorney who can evaluate your specific situation and help you determine the best path forward.