Our Fort Worth and Dallas bankruptcy attorneys serve people who are looking for debt relief in the form of a Chapter 7 bankruptcy. A Chapter 7 bankruptcy attorney can help find the best outcome for financial problems that come up unexpectedly. Divorce, unemployment, sudden medical expenses – all of these can quickly drain your cash reserves and leave you penniless. Keep reading below to see how filing Chapter 7 bankruptcy can eliminate your debt and give you a fresh start.
What is Chapter 7 Bankruptcy?
Unlike its counterparts, Chapter 7 bankruptcy does not entail the filing of a payment plan. Many people are leery of Chapter 7 bankruptcy because they think the trustee will sell all of their property. In most cases, no property has to be given up or sold. It is important to realize that Chapter 7 does not provide protection against foreclosure or repossession, however, so if one of your goals is to save your home or your car through bankruptcy, a Chapter 13 bankruptcy might be more advantageous.
To be eligible for Chapter 7, the debtor must be a person, corporation, partnership, or other business entity. It does not matter how solvent the filer’s debts are.
The filer must also complete a credit counseling course with an approved agency (generally online or over the phone). There are sometimes exceptions concerning eligibility as determined by the court. The main goal of Chapter 7 is to provide the debtor with a “fresh start.” Once the debts have been discharged through the protection plan, the debtor is no longer responsible for those debts.
Texas’ Chapter 7 Bankruptcy Filing Fees
Upon filing your bankruptcy petition, you will have to pay a bankruptcy case filing fee of $335. When a petition is filed, an automatic stay goes into effect stopping most, if not all, collection activity. The benefits of the stay, however, are subject to the bankruptcy code and in certain cases do not apply or are temporary. Not long after the petition is filed, the court’s bankruptcy trustee will hold a meeting for the creditors to make sure there are no objections (this is a rare occurrence). Once the petition is approved, it is just a matter of months until all eligible debts are completely discharged (wiped out).
How to Qualify for Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a rather quick process that may take a few months. Not everyone has the qualifications for Chapter 7 bankruptcy, but most people who are experiencing financial challenges will meet the requirements to file. Chapter 7 works best for people who:
- Have a lot of credit card debt and/or medical bills
- Keep receiving collection calls and notices.
- Do not have enough income to pay off bills.
- Do not own much property or are current on house and car payments.
- Have low credit score.
Since 2005, bankruptcy laws require that the people seeking Chapter 7 protection submit their proof of income. If your income is equal to or below the state median income level, you will be eligible to file for Chapter 7. However, if your income exceeds the state median income level, you may be required to undergo means testing. Means testing determines if you are able to repay some of your unsecured debt with disposable income, or income that may be left over at the end of the month after all necessities are paid. Leinart Law Firm offers a complimentary consultation and evaluation, during which we can determine whether you have qualifications for Chapter 7 bankruptcy requirements.
Required Documents for Chapter 7
One of the most time consuming parts of filing for bankruptcy is gathering all the information that is required. Below is a general list of the paperwork you will need in a typical filing. First, create an inventory of all your assets and their fair market value. If you have statements for these items, include the most up-to-date statement. These include:
- Any cash you own
- Annuities or CDs
- Checking and savings accounts
- Profit sharing accounts
- Pension, 401k, IRAs, or other retirement accounts
- Furniture, computer equipment, electronics and other household goods
- Deposits you’ve placed with landlords, utility companies, landlords and more
- Collectible items such as antiques, books, art, etc.
- Any other transport such as boats, airplanes, jet skis, etc.
- Jewelry and luxury clothing (such as furs)
- Sporting equipment, photographic equipment, firearms, etc.
- Insurance policies, stocks and corporate or government bonds
- Any money that is owed to you, such as tax refunds, outstanding personal loans, etc.
- Property settlement documents, such as alimony, support payments, etc.
- Any patents, copyrights, or trademarks you own outright.
- Office equipment and/or machinery
You will also need to list any and all real property you own and the fair market value of that property. Make sure to include:
- Vacation Homes
- Parcels of land
The purpose of this is not to create a list of items to be sold, but to make sure the debtor fully qualifies for a Chapter 7 bankruptcy and does not own too many assets.
Additional Information Needed to File Bankruptcy in Texas
There are some forms of debts that are not dischargeable, such as student loans, child support and some taxes. When a debtor files for Chapter 7 bankruptcy protection, there are a series of additional forms that must also be submitted. These forms include the following:
- A list of assets
- A list of liabilities
- An income report
- A list of current expenses
- A schedule of any executory contracts and leases
- A copy of the debtor’s most recently filed tax returns
- Proof of credit counseling
- A list of exempt property
What Debts Are Not Discharged in Chapter 7?
Most debts can be legally written off, or discharged under Chapter 7, the most common type of bankruptcy. In fact, Texas bankruptcy law doesn’t tell us what kinds of debts are discharged, instead saying that all debts are discharged except a limited list of those that are not. So, the discharge of debts granted under Section 727 of the Bankruptcy Code applies to all debts except for those listed as exceptions to discharge in Section 523 of the Code. These listed exceptions to discharge can be divided into two categories: 1) debts which are discharged as long as the creditor does not object, and 2) debts which are not discharged even if no objection is raised by the creditor.
Debts Discharged Unless Objection Raised
Creditors can challenge your ability to discharge three types of debt:
- Debts that arose by you making a false representation or committing fraud to get the loan or other form of credit. This can take the form of an intentional falsehood on a loan application, cash advances or use of your credit card when you had no intention of paying back that credit, or any other way of deceitfully incurring a debt.
- Debts for theft or embezzlement, for fraud while in a trust relationship, including misappropriation of money or property while in that relationship. This can include stealing from one’s employer, cheating a business partner, or inducing an elderly relative to change his or her will in your favor.
- Obligations resulting from intentionally and maliciously harming a person or business, or its property. This includes bodily injuries and property damage caused intentionally, such as during a domestic disturbance or bar fight.
The person or business which has a claim against you for any of these types of debts must file a formal adversary proceeding within a rather short window of time—usually within 60 days of your meeting of creditors—or else that debt is discharged along with the rest of your debts.
Debts Not Discharged Even if No Objection Is Raised
The following types of debts are not discharged under Chapter 7 bankruptcy:
- Criminal fines, fees, and restitution
- Some types of taxes (this depends on the nature of the tax owed as well as the age)
- Child support, spousal support and maintenance
- Most student loans
- Claims for bodily injury or death from driving a vehicle, boat, or aircraft while intoxicated
- Debts not listed on your bankruptcy schedules
Secured Debts in Chapter 7
A secured debt is one in which your obligation to pay is secured by the creditor’s rights to the collateral. If you do not stay current on the debt, that triggers the creditor’s ability to pursue that collateral, to repossess a vehicle, for example. Chapter 7, the most straightforward type of bankruptcy, gives you some important advantages in dealing with your secured debts.
The Reaffirmation Option
If you are current on your secured debt and want to keep the collateral, you can almost always do so. People are sometimes afraid that upon filing bankruptcy they would not be allowed to keep making payments on a vehicle or home. In fact, one legitimate reason to file a Chapter 7 case is to discharge (get rid of) unsecured debts in order to be able to afford your vehicle or home payments.
However, if you want to keep making payments on a secured debt, you may need to sign a reaffirmation agreement. Just like it sounds, through that agreement you are reaffirming the debt. Why do you need to sign a document agreeing to pay for a debt that you’d already agreed to pay originally? Because your bankruptcy discharge order, which legally writes off your debts, would otherwise write off this obligation as well.
A reaffirmation agreement excludes the reaffirmed debt from that discharge. You are choosing to stay legally liable on that debt as if you had never filed the bankruptcy. You should always discuss this with your attorney, though, as there may be situations where this is not advisable.
The Surrender Option
Chapter 7 gives you the option of surrendering the collateral (property) if you do not need or want it any longer, or just can’t afford to make the payments. Surrendering collateral usually doesn’t make sense outside bankruptcy, at least not with “recourse” debts secured by a vehicle or other personal property. That’s because after you surrender the collateral, the creditor will sell it at an auction, usually for less than the balance. Then after adding the auction costs and other fees to the balance, the creditor will come after you for this “deficiency balance.” But in a Chapter 7 case, that balance is discharged, making surrender a much more sensible option.
Get a Free Initial Consultation with a Chapter 7 Bankruptcy Lawyer
Filing bankruptcy can give you an opportunity to eliminate the burden of debt. However, it’s still a big decision that will impact your financial situation for years to come. Our Chapter 7 bankruptcy lawyers can guide you each step of the way, from filing your bankruptcy petition all the way through discharging your debt.
Contact the Leinart Law Firm today for your free consultation.