Question 1

What is bankruptcy, and how does it work?

Accepted Answer

Bankruptcy is a legal process by which an individual or a business can discharge many of their debts, stop most collection actions (including lawsuits), stave off foreclosure, and cease wage garnishments. When an individual files for bankruptcy in Texas, the bankruptcy court issues an automatic “stay” of most debt collection actions. Depending on which type of bankruptcy you file (Chapter 7 or Chapter 13), either your assets are liquidated to repay creditors, and any eligible remaining debts are discharged, or you develop a reasonable repayment plan for creditors. The balance of the debts is discharged at the conclusion of the plan.

Question 2

What debts cannot be discharged in bankruptcy?

Accepted Answer

Texas prohibits certain debts from being discharged in bankruptcy, both Chapter 7 and Chapter 13. Child support and alimony in arrears cannot be discharged, nor can any federal or state tax obligation you owe (if you owe state taxes in another state; Texas doesn’t have a state income tax). Most student loans are also ineligible to be eliminated through bankruptcy, unless you and your DFW bankruptcy lawyer can prove that you are under extreme financial hardship. Other debts that cannot be discharged in bankruptcy include those resulting from fraud, embezzlement, or willful injury to another person or their property (such as a decision rendered against you in a lawsuit).

Question 3

Will I lose all my property if I file for bankruptcy?

Accepted Answer

No, if you file for bankruptcy in Texas, you won’t lose all your property, but you may have to liquidate non-essential property to pay debts. But, Texas has generous exemptions for people filing bankruptcy. Your primary residence is fully protected under the Texas homestead exemption. You can also exempt the full value of one vehicle per driver-licensed household member. Single bankruptcy filers can exempt up to $50,000 worth of personal property, and families up to $100,000, which can include furniture, clothing, livestock, tools, heirlooms, and (limited) jewelry. Finally, your retirement plans and pensions are typically protected.

Question 4

How often can I file for bankruptcy?

Accepted Answer

If you file for Chapter 7 bankruptcy in Texas, you must wait eight years before filing Chapter 7 again, or four years to file Chapter 13. If you initially filed Chapter 13 bankruptcy, you must wait two years to file another Chapter 13 bankruptcy and six years before filing Chapter 7 bankruptcy. These are federal regulations, and so would apply if you moved to another state.

Question 5

Can I file for bankruptcy if I’m self-employed?

Accepted Answer

Yes, if you are self-employed, you can still file for bankruptcy in Texas. Self-employed in this sense includes a sole proprietor, independent contractor, or small business owner. To do so, you must provide detailed financial records of your business (such as a P&L statement), business bank account records, tax returns from the last few years, and documentation of outstanding debts you wish to discharge under bankruptcy. You may also be able to discharge certain business debts under your filing. Per Texas law, your tools and business equipment are protected, as is your home, if you are a home-based business, so that you can continue your business operations.

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