Chapter 13 Bankruptcy Lawyers in Texas
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Chapter 13 bankruptcy restructures your secured (and in some cases, unsecured) debt over time. Leinart Law Firm’s Fort Worth and Dallas bankruptcy attorneys have more than 15 years of experience. During that time, our lawyers have helped thousands of individuals and businesses restructure debts and get the debt relief they needed. If you are seeking help from a Chapter 13 bankruptcy attorney, you are moving in the right direction.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy relief comes in the form of a court-protected repayment plan. Under Texas bankruptcy law, you can have loan agreements modified, and even eliminate some or all of your unsecured debt. However, many people mistakenly believe that filing Chapter 13 requires you to repay all of your creditors in full, and with accumulated interest. This is not the case. Chapter 13 allows you to repay only the percentage that you and your family can reasonably afford, which is often nothing for unsecured creditors.
In addition, you may also restructure some secured loans. A car loan, for example, can often be restructured so you capitalize on a reduced interest rate. In many cases, the principal amount owed on the vehicle can also be adjusted to the current blue book value. If you owe more on your car than it is worth, Chapter 13 might be a good option for you.
Filing Chapter 13 in Texas
This is how you can file Chapter 13 in Texas in a straightforward consumer bankruptcy case:
- You collect all necessary documents, such as current income sources, major financial transactions for the last two years, monthly living expenses, debts (secured and unsecured), large medical bills, mortgage payments, assets, and paperwork for any other personal loans that you may have.
- You submit a two-page bankruptcy petition and a proposed repayment plan at your Texas district bankruptcy court. Then, you pay the corresponding filing fee.
- The court reviews your petition and Chapter 13 plan and either approves it or requests changes.
- If you fulfill the Chapter 13 bankruptcy requirements, the court confirms your repayment plan and you make monthly payments to the bankruptcy trustee to satisfy the plan put in place.
Advantages of Filing Chapter 13
Chapter 13 bankruptcy can handle all of your income tax debts in one tidy package. You can account for three types of income tax debts, depending on their age and other conditions.
First, there may be tax debt that is old enough to simply be discharged (eliminated) in a Chapter 7 bankruptcy case. Under Chapter 13 these are lumped in with all your other “general unsecured” creditors — credit cards, medical debts and such — and only paid to the extent that you have available money to do so during the course of your case. Often these are completely discharged, with you paying none of these eligible back taxes.
The newer, non-dischargeable taxes are “priority” debts, meaning that the tax itself has to be paid in full during your Chapter 13 case. HOWEVER, interest and penalties generally stop accruing throughout the payment period, which alone could potentially save you thousands of dollars.
You might also have a third category of income tax debt IF the IRS recorded a tax lien. In that case, whatever that lien attached to is in effect collateral on that debt. Chapter 13 often handles these debts much better than Chapter 7 does, because, first, the IRS can’t exercise its lien rights by foreclosing on or seizing your assets. And second, Chapter 13 provides a great mechanism for valuing that lien and eliminating it, so that it must be released at the completion of your case.
At the end of your successful Chapter 13 case you generally will owe nothing to the IRS or any other tax authority, and would usually be debt-free altogether.
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How Long Does Chapter 13 Bankruptcy Take?
A Chapter 13 bankruptcy case can take anywhere from three to five years, depending on your debt repayment plan. However, your repayments must be completed within five years.
Additionally, within 180 days before you start the bankruptcy process, a certified credit counselor must brief you on managing your finances, analyzing your budget and exploring alternatives to filing. Second, you generally need to be a resident in the state where you would like to file for at least 90 days before you file.
Once you make your final payment under the Chapter 13 repayment plan and complete the required financial management course, you will receive your discharge.
Chapter 13 Bankruptcy Requirements
Chapter 13 filers in Texas should meet the following requirements:
- Fulfillment of the credit counseling requirement. If the credit counseling agency created a debt management plan, the debtor must provide a copy to the court.
- The debts are not too high. Chapter 13 is available to debtors with less than $336,900 in unsecured debt and less than $1,010,650 in secured debt.
- The income tax returns for the previous 4 years have been filed.
- The proposed plan repays all required debts, such as priority debts, secured debts that survive the repayment plan, and other secured debts.
- Enough disposable income to pay the bankruptcy plan (often just back payments on secured debts and court/attorney fees).
How Chapter 13 Works When You Owe Income Taxes
A Chapter 13 bankruptcy will allow you to pay off back income taxes over a three-to-five-year period, frequently without incurring any additional interest or penalties, and even sometimes paying less of the tax itself. In some cases, if the taxes are old enough and certain guidelines are met, back taxes may be totally wiped out in a Chapter 13 bankruptcy.
Chapter 13 Gives You Lots of Power against the IRS
Consumers file a Chapter 13 case instead of a “straight bankruptcy” Chapter 7 for many reasons. If you owe a lot of income taxes, the significant advantages that Chapter 13 gives you over Chapter 7 would likely be reason enough. To be clear, Chapter 7 can discharge (write off) income taxes that are old enough and meet a number of conditions. However, if you owe taxes for a number of years and/or for recent years, Chapter 13 may be your best option. Under Chapter 7 you are at the mercy of the IRS in dealing with any income tax debts that are not discharged. Chapter 13 gives you some extremely helpful tools for getting control over those tax debts while continuously protecting you from the IRS.
Protection from the IRS
From the moment your Chapter 13 case is filed, you and your assets are protected from the IRS’s collection efforts, up until the time you are tax debt-free. The “automatic stay,” which stops all of your creditors from pursuing you, applies just as powerfully to the IRS (and all other tax authorities). And although this protection is in place in Chapter 7 cases as well, it only lasts about three or four months and generally expires before you even start dealing with the IRS about the debts that were not discharged. In Chapter 13 that protection lasts throughout the three-to-five year case. That’s huge: there can be no threat of wage garnishment, tax levies on your property, tax liens on your home or vehicle, or phone calls from the IRS throughout that time.
You Can Discharge More Debts Than Under Chapter 7
Way back in the late 1970s when the Bankruptcy Code first became law, Congress wanted to give debtors the incentive to file Chapter 13 payment plans instead of straight Chapter 7s. So the law it wrote permitted the discharge (legal write-off) of many categories of debts under Chapter 13 that could not be discharged under Chapter 7. As a result the discharge of debts under Chapter 13 informally came to be called a “super-discharge.” But over the decades since then, Congress has steadily reduced the categories of debts discharged only under Chapter 13 until now only two are left.
1. Non-Support Obligations Owed to an Ex-Spouse
Two kinds of debts come out of a divorce: support obligation and non-support obligations. You CAN’T discharge child and spousal support either in a Chapter 7 or Chapter 13 case. But you CAN discharge non-support obligations ONLY in a Chapter 13 case, not a Chapter 7 one.
So what are non-support obligations? Not to be flip, but they include all the financial obligations arising out of a divorce (or legal separation) which are not support obligations. They are sometimes called “property settlement” obligations. Most often they are requirements in the divorce decree for one ex-spouse to pay the other as compensation for having received more than his or her appropriate share of the marital property. Sometimes instead of an obligation to pay the ex-spouse directly, it’s framed as an obligation to pay a joint debt or one of the other ex-spouse’s debts—again to even out the split of property.
So these “property settlement,” non-support obligations can be discharged in the Chapter 13 super-discharge.
2. “Willful and Malicious Injury” Obligations
A debt owed for “willful and malicious” injury is one in which the debtor is alleged to have hurt someone or someone’s property intentionally and with at least a reckless disregard for the safety of that person or property. The debt may have already gone through litigation and resulted in a judgment for damages for the injury, or the bankruptcy could instead be filed before that has happened.
A debt for “willful and malicious injury” cannot be discharged under Chapter 7 as long as the injured party objects to its discharge. Section 523(a)(6) makes clear that a Chapter 7 discharge “does not discharge an individual debtor from any debt . . . for willful and malicious injury by the debtor to another entity or to the property of another entity.”
However, such a debt can be discharged under Chapter 13. Section 1328(a)(2) lists the categories of debts that are not discharged in a Chapter 13 case, and that list does not include the “willful and malicious injury” category.
What Are “Non-Support” and “Willful and Malicious Injury” Debts?
The problem is that these two categories of debt included in the Chapter 13 super-discharge are not at all straightforward in what they cover and what they don’t. “Support” obligations can include those that the divorce decree didn’t label as such, but the bankruptcy court can decide are “in the nature of support.” So a debt that looks like a “non-support” obligation might not be. And the line between injuries that arose out of “willful and malicious” and negligent or reckless behavior is certainly not always clear.
Furthermore, these two discharge categories both tend to involve situations—divorces and personal injuries—which are emotionally intense. The “creditors” may well not take kindly to the debtor trying to discharge the obligation in bankruptcy, and put up a big legal fight.
So the decision to use Chapter 13 to undo part of a divorce decree or to escape accusations of “willful and malicious” injury involve legal, human, and tactical considerations. You’ve got to weigh these carefully with an experienced bankruptcy attorney before trying to rely on the Chapter 13 super-discharge.
More Helpful Information About Chapter 13 Bankruptcy
Complete Guide to Bankruptcy in Texas
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Minimum Amount of Debt for Bankruptcy Filings
Bankruptcy vs. Debt Consolidation
What is the Bankruptcy Means Test?
Chapter 13 vs. Chapter 7 Bankruptcy
How to Reestablish Credit After Bankruptcy
Get a Free Consultation With a Chapter 13 Bankruptcy Lawyer
At Leinart Law Firm, we focus on bankruptcy and debt solutions, so we know exactly what legal protection you may be granted under Chapter 13 bankruptcy laws. With more than 15 years of experience with bankruptcy law, we have filed thousands of bankruptcies and helped many people to make a fresh start.