There are several types of bankruptcy. Manriquez Law Firm focuses primarily on consumer Chapter 7 and Chapter 13 bankruptcy cases. Generally, most individuals and married couples will fit into one of these two chapters. Bankruptcy is dictated by federal law and allows consumer or business debtors to obtain relief from dischargeable debt. Dischargeable debts are those which the debtor will no longer have to pay at the end of the successful bankruptcy case. The bankruptcy system can be complicated and requires a detailed consultation to determine not only if bankruptcy is right for you, but which type of bankruptcy you can and should file. Both Chapter 7 and Chapter 13 require debtors to undergo credit counseling courses. In the event you decide bankruptcy is right for you, you will be provided instructions on how to take those courses.
Spouses are not required to file jointly, but it is advisable in many cases. While the majority of your debt may be held in one spouses name only, that does not mean the other spouse may not be liable for payment. As a community property state, we are also a community debt state. Bankruptcy does not extinguish existence of debt, but rather a party's liability for paying that debt. If two people are liable and one files bankruptcy, the other may still be liable for payment. Unless the spouses are newly married and have not incurred any significant debt during their marriage, or unless there are other reasons a spouse cannot or should not file bankruptcy, I usually recommend both spouses at least consider filing together. There is no difference in price between an individual or joint filing.
Bankruptcy should not be considered lightly, but it is not to be considered a sign of a person's irresponsibility. Sometimes life just happens. Divorce, unexpected medical bills, and unforeseen job loss can happen to anyone. Bankruptcy can help someone in these circumstances to get a fresh start. Many people find that if they use that fresh start correctly, and take the right steps post-bankruptcy, they are able to obtain credit, even while the bankruptcy remains on their credit report.
Chapter 7 bankruptcy, often referred to as liquidation bankruptcy or a wipe-out bankruptcy, is the one most often sought by debtors. However, in order to be eligible to file Chapter 7 bankruptcy, your household income must be below average. The average is based upon the average income for your household size, in your geographic area, referred to as "median income". Please note, this is household income. While spouses are not legally required to file jointly, all income in the household is considered in determining eligibility, not just the income of the filing spouse.
In a Chapter 7 bankruptcy, the debtor must disclose all assets to which he or she has any interest. They may then choose between the federal list of exempt property or the Texas list of exempt property. Any property not on the designated exemption list may be taken and liquidated for benefit of the creditors. Any dischargeable debt remaining after such distributions is then discharged or extinguished. Texas exemption laws are among the most generous of the states, leaving many debtors able to file with no non-exempt assets, resulting in creditors receiving nothing, thus the term "wipe-out bankruptcy". Keep in mind, secured creditors and what is known as priority creditors may be treated differently. Secured debts are those where the creditor holds a security interest in certain collateral, such as the bank holding a security interest in your car. In order to keep the collateral in these instances, you will likely be required to continue to make payments after bankruptcy. Priority debts are those which the law has designated as having special treatment. These debts are not generally dischargeable in a Chapter 7, and may include debts such as some tax debts and domestic support obligations (i.e. child support and court-ordered alimony).
Chapter 13 bankruptcy is a repayment plan, wherein the payments are based upon your household income, certain allowable expenses, and other requirements under the law. Payment plans usually last five years, though it may be shorter in some cases. When you file a Chapter 13 bankruptcy, you will go through an approval process called, confirmation, whereby the Court will determine if your plan meets all requirements under the law. While non-exempt property is not automatically liquidated in Chapter 13 bankruptcy as it is in Chapter 7, it does play a role in determining the required payment amount. In some circumstances, surrendering non-exempt property may be advised in order to make your plan feasible. Your plan won't be confirmed by the Court if it is not feasible.
Chapter 13 bankruptcies are often filed by debtors who are facing foreclosures or repossessions. Keep in mind that most bankruptcy cases can take a few weeks on average to prepare to file. If you need your case expedited, it may be harder to find an attorney to take the case, the closer you are to a foreclosure sale date or repossession. Once you become aware such a situation is imminent, you should go ahead and set up a consultation as soon as possible. Manriquez Law Firm is happy to discuss your individual circumstances at no cost to determine if an expedited case is both warranted and possible.
The most common question I receive from potential Chapter 13 filers is "What is the benefit of filing a Chapter 13 bankruptcy over negotiating debt settlements?" Creditors are not required to settle for less than owed. If your repayment plan meets all requirements under the law and you qualify for a Chapter 13 bankruptcy, the creditor is forced to accept the terms. In some circumstances, debtors may make enough income to be required to repay 100% of their priority and non-priority unsecured debt over the five year plan. The second most common question I get is when this occurs and I am asked "What is the benefit then of filing bankruptcy instead of just paying the debt?" The biggest benefit is that upon filing, interest and penalties on the unsecured debts stop accruing, resulting in paying it off quicker and paying less in the long run.
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