Bankruptcy filings texas
Bankruptcy is the state where the debtor is legally unable to pay his dues to the creditor on the due date as per terms agreed. Bankruptcy can be invoked both by the debtor as well as the Creditor, called as Voluntary and Involuntary Bankruptcy respectively.
Is Bankruptcy the only solution to your problems
First of all, one has to decide if filing Bankruptcy is necessary or not. A Solicitor or an accountant can be of great help in this regard. If you fall under any of the categories mentioned below, then you escape out of Bankruptcy in Texas. Hey, this sounds great!!
1) The foremost simple solution is to contact your creditors and work out a repayment schedule, agreeable to both explaining your situation. This generally works out as under adverse conditions most of the creditor s would like to have their Principle amount at least.
2) The Second option is the Texas Debt Consolidation loans. Here, you will avail a fresh loan to wipe off all you re existing debts and then will be left with only the debt consolidation loan.
3) The third option offered to residents of Texas is the Texas Credit Counseling Plan. Here your loan interest rates are reduced and reduced payments are accepted if you enter into debt repayment plan. The process is you have to deposit money with the Credit counseling service each month. They in turn pay the amount to the creditors as per the payment schedule suggested by the counselor. Additional credit facility may not be availed by the debtor till the end of the program.
The Process of filing Bankruptcy
As per the 2005 Bankruptcy Act, those who file for Bankruptcy on/after October 17,2005 in Texas are required to undergo credit counseling course within six months before filing for Bankruptcy and a financial management instructional course after filing Bankruptcy.
Before filing Bankruptcy, one should have the following information in hand: -
1) Major financial transactions for the last two years
2) Monthly living expenses
3) Debts [Secured and Unsecured]
4) Properties in possession
5) Tax returns for the last two years
6) Deeds to real estate that you own and documents for any loans availed.
Then, either the debtor on his own or with the help of an attorney needs to identify those properties that could be exempt from seizure based on Texas exemptions. Exemption limit applies on the equity that a debtor has in his property, up to a particular amount. If a property is secured by a loan, and you are in midst of your payment process, then your equity is covered by exemptions. The trustee may liquidate a particular asset and distribute the proceeds where the equity in that particular asset is not covered by exemptions. Married couples filing jointly for Bankruptcy can avail their exemptions individually. In Texas, debtors have the choice of using federal exemption statues instead of Texas exemption if that prove to be advantageous. Examples of properties that are exempt under Texas Bankruptcy law are Pensions, Insurance, Homestead, and personal property.
Once such exempted properties are identified, either the debtor himself or with the help of an attorney must file a two page petition with other forms at the Texas district Bankruptcy court. These forms are known as schedules, which reflect the debtor s recent financial transactions and current financial status
Bankruptcy can be filed under chapter 7 or chapter 13. Now, what are these Chapter 7 is called Liquidation Bankruptcy and lasts for 3-6 months. Here, the court takes control over the debtor's non-exempted assets, repays the creditors respectively by selling the same. Then one is discharged of his debts. Chapter 13 is called as Repayment Bankruptcy, where repayment is done over a period of 3-5 years out of one's own income. Whether a person qualifies to file Bankruptcy under Chapter 7 or Chapter 13 is governed by the means test of the Texas Court. Chapter 7 can be applied under the following circumstances: -
1) First the average income of the debtor over a period of 6 months prior to filing Bankruptcy is compared with the median income of the state. If the income is below the median, then one may opt for Chapter 7. Otherwise, the remaining part of the means test will decide the appropriate chapter for filing Bankruptcy.
2) If the debtor is unable to pay even a minimum amount of USD 6000 over a period of next five years to his/her unsecured creditors after his expenses.
3) If the debtor is unable to pay 25% of his unsecured debt. It is the debtor's personal choice to opt for chapter 13 even if he/she qualifies under chapter 7.
Advantages of Chapter 7 Bankruptcy: -
1) Immediate protection against creditors collection effort and wage garnishment from the date of filing is provided.
2) Neither the court nor the creditors have any right over earnings made and properties acquired after date of filing of Bankruptcy.
Disadvantages: -
1) One has to wash off his hands from his non-exempt property as the trustee has the right to sell it to facilitate repayment.
2) Co-signors of the loan are also affected.
3) Chapter 7 Bankruptcy can be filed only once in every six years .
When is Chapter 13 preferred over Chapter 7
Chapter 13 is generally opted when one is lagging behind his debt repayment schedule and still wants to retain his property, either in Texas or in any other state at the end of Bankruptcy process. Chapter 13 is used in one of the following situations.
1) To make up overdue payments and reinstate the original mortgage agreement
2) Cases where the debtor wants to retain Properties that are not covered by Texas Bankruptcy exemptions.
3) Debts possessed are non dischargeable under chapter 7 or income of debtor is beyond the scope of filing Bankruptcy under chapter7. It is generally observed that Chapter 7 is most preferred among bankrupts in Texas as most of the debt is written off in this case.
A proposed repayment plan must be submitted in case a person wants to file Bankruptcy under Chapter 13. The repayment plan must satisfy the following criteria: -
1) Unsecured creditors must be paid at least the amount if chapter 7 Bankruptcy had been filed.
2) It must be delivered in good faith.
3) All disposable income must be paid in the plan at least for a minimum period of 3 years.
The debtor will have to attend a hearing before a Bankruptcy Jude who will either confirm or deny the repayment plan. If the plan is confirmed and if the debtor adheres to it, balance [if any] on the dischargeable debts that he owes will be eliminated at the end of term.
Some advantages of filing Bankruptcy under Chapter 13: -
1) If repayment plan is strictly followed, one can retain both exempt as well as non-exempt properties.
2) Immediate protection against creditors collection effort and wage garnishment from the date of filing is provided.
3) Co-signers remain unaffected by creditors efforts if chapter 13 plan paves way for full payment.
4) Chapter 13 filing Bankruptcy can be filed repeatedly.
Disadvantages: -
1) Unlike Chapter 7, your post Bankruptcy income is used for repayment over Chapter 13 plan period.
2) Stock and commodity brokers cannot file under chapter 13.
3) Since filing under Chapter 13 is more complex, legal fees are higher .
Once you have filed for Bankruptcy, an automatic stay is invoked . This will prevent the creditors from directly contacting the debtor for payment or staking a claim on your property. This helps the debtor from being mentally harassed. A trustee is then appointed by the Court whose job is to see that creditors are paid as much as possible. The trustee reviews your paperwork, mainly crosschecks the declaration of assets you have made and exemptions that have been claimed.
Meeting with Creditors
The trustee arranges a meeting with the creditors approximately one month after filing. Debtors must necessarily attend the meeting while the creditors are not obliged to do so. Objections are sorted out by negotiation between the debtor/debtor counsel and the creditor. A Judge intervenes where compromise could not be reached. The debtors right to discharge can be challenged by the creditors/trustees within 60 days. Otherwise, the debtor will receive intimation from the court that all his dischargeable debts have been discharged within 3-6 months. Thus filing for Bankruptcy in Texas has its own advantages as well as disadvantages. One has to thoroughly analyze the pros and cons before opting for it.
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