Frequently Asked Questions about How to File for Bankruptcy in Houston
Are you overwhelmed with bills and collection notices? Are you facing a serious financial crisis? If you need debt relief now, consumer bankruptcy can help.
Your options may be difficult to understand. To help alleviate some of the confusion, our Firm has prepared a list of frequently asked questions and answers.
These questions and answers are not a substitute for actual legal advice. If you need legal assistance, please call the Westbrook Law Firm, PLLC, at (281) 888-5581. The road to financial freedom starts here.
Unfortunately, consumer bankruptcy does not allow you to keep any credit cards with a balance. You are required to list all creditors and debts, and this usually means the account will be closed.
If you have a card with a zero balance, you are not required to list the card in the bankruptcy, as there is no debt to disclose. You can try keeping the card, but in most instances, the credit card company will cancel the account, even if you have a zero balance. This is especially true if you are discharging debt through a Chapter 7 bankruptcy.
Some banks are more generous and could allow you to keep using the card, but they may require a new agreement with less attractive terms and conditions, including a lower limit and higher interest.
If you are considering bankruptcy, it’s important to understand the pros and cons of filing. While your accounts may be cancelled, there are other ways to rebuild and establish credit after filing.
When you file for bankruptcy, it becomes a matter of public record, but it’s unlikely that anyone would take the time and effort to locate and access these records. A background check may discover the filing, but in our experience, employers do not put much emphasis on a consumer bankruptcy filing. In most cases, the public will be unaware of your bankruptcy.
Although bankruptcy is visible on your credit report for 10 years after filing, most of our clients see a dramatic increase in their credit score about 12 to 18 months after filing.
After filing, there are several ways to improve your credit score in a short period of time. The first step is to apply for a secured credit card and make timely payments. You can then apply for regular credit, such as a gas card, and make timely payments on this. Over time, your score will improve and you will have a history of good credit. This history will help with large loans for cars and even a home.
If you carefully manage your budget and keep your payments current, your credit score will improve rapidly. While a prior bankruptcy harms your credit, the affect of the filing will diminish over time. Many loan applications ask about bankruptcy filings in the last 12 to 18 months. After this time has passed, most lenders are willing to offer better terms and conditions, including lower interest rate.
The bankruptcy laws were amended in 2005, which made credit counseling a legal perquisite to filing for Chapter 7 or Chapter 13 bankruptcy. You must choose an accredited credit counseling group, but this can be done online, in the convenience of your home.
In many cases, the credit counseling group may advise you that filing for bankruptcy is the best option, based on your current situation.
The credit counselor will review your income and debts, help you prepare a monthly budget and then determine if you have any disposable income that could satisfy your debts. You are not bound by the counselor’s advice. The counseling is merely a requirement added to the law, and one of many checklist items to complete prior to filing. Our office can provide several accredited programs to choose from if you are ready to file.
Chapter 7 is the most common form of bankruptcy and is often called “personal bankruptcy.” This option allows you to eliminate most unsecured debts (such as credit cards and personal loans), meaning you don’t have to pay them back.
Many of our clients turn to Chapter 7 because of reduced income, recent unemployment, unpaid medical bills, and overextended credit. Generally, we find that our clients are hardworking, responsible people who are facing a difficult financial situation through no fault of their own.
Sudden illness and resulting medical bills cause more than half of all Chapter 7 filings each year. Medical bankruptcies affect over 2 million Americans annually. Many of our clients file Chapter 7 to discharge these unexpected medical bills.
There are specific requirements to file for Chapter 7, including a review of your income and expenses for the 6-month period prior to filing. This process can be extremely complicated, which is a primary reason to seek legal advice when contemplating a bankruptcy filing.
If you have disposable income that could be used to pay your creditors over an extended period of time, Chapter 7 will not work. If you have assets that you want to keep but cannot be protected through legal exemptions, Chapter 7 is not a good choice. There are several options for your situation, and it’s important to meet with an experienced bankruptcy attorney to analyze all of the pros and cons.
Before filing a bankruptcy, you should consider all debt relief solutions. This will help determine if bankruptcy is right for your specific situation and circumstances.
If you are primarily concerned with unsecured debts, such as credit cards and medical bills, an experienced attorney can sometimes help you settle these debts. Creditors may be more willing to work with an attorney, and if they know you’re contemplating bankruptcy, they may be willing to work with you to settle a portion of the debt. While a settlement can be helpful, it will usually be reported to the 3 credit bureaus (which can lower your score), and you could be taxed for the forgiven portion of the settled debt. If you have numerous debts and creditors, bankruptcy is typically a better solution than debt settlement.
Another option is debt consolidation, where one loan is established to pay off your debts. These programs are based on your current income and credit score. If you qualify, the program allows you to make one monthly payment instead of many. If all of your creditors participate in the program, and the monthly payment is affordable, this option may work. However, if some creditors do not participate, you may be left with a large debt and other negative consequences, including lawsuits, levies and garnishments.
Long ago, debtors were sent to prison for failing to pay their debts. Thankfully, Congress passed the U.S. Bankruptcy Code, which grants relief to debtors and the ability to start over.
In many cases, bankruptcy results when a person incurs more debt than his income and assets can cover. In these unfortunate situations, the debtor can file a petition with a federal bankruptcy court and acknowledge that he or she owes more money than can be paid off in the expected time frame. Most consumers go through Chapter 7 bankruptcy or Chapter 13 bankruptcy to resolve their financial problems.
In Chapter 7 bankruptcy, you can eliminate certain unsecured debts in a short period of time, provided you qualify under the means test (which looks at your income and expenses for the 6-month period prior to filing).
For consumers who qualify, filing Chapter 7 allows them to be free of most unsecured debts, including:
- Personal loans
- Medical bills
- Utility bills
- Credit card bills
- Payday loans
- Some IRS tax debts
- Repossession deficiency debt (after the vehicle is repossessed)
- Foreclosure deficiency debt (after the house is foreclosed)
- Some government overpayments (social security, unemployment, etc.)
Some debts cannot be discharged in Chapter 7, including:
- Child support payments
- Spousal support payments
- Student loans (in most cases)
- Recent IRS tax debts (last 3 years)
Chapter 13 provides similar relief for consumer debt. In Chapter 13, a debtor repays his debts through a court-approved plan (between 3 and 5 years). This bankruptcy helps reorganize all debts, including secured (car, house), priority (IRS taxes) and unsecured. Most of our clients file Chapter 13 to stop home foreclosure and vehicle repossession. Like Chapter7, a Chapter 13 bankruptcy stops all creditor harassment through the automatic stay.
Consumer bankruptcy encompasses Chapter 7 and Chapter 13 of the U.S. Bankruptcy Code. The current filing fees are $335 for Chapter 7 and $310 for Chapter 13.
There are additional legal fees and costs, which differ between Chapter 7 and Chapter 13. All fees are case-specific and are determined by your specific situation and facts.
No matter how complex your situation seems, our Firm offers competitive rates for all legal services. We also provide affordable payment plans.
A bankruptcy will obviously impact your credit score and affect your ability to gain new credit and financing. However, at the conclusion of your bankruptcy, you will begin receiving credit card offers and other incentives to help rebuild your credit. Some banks will offer you “secured” credit cards, where you deposit your own money (sometimes as little as $200) to guarantee future payments. As you make timely payments and prove an ability to repay your debts, your credit score will increase and new credit will be easier to obtain.
If you’re interested in purchasing a home after bankruptcy, there is good news. In many instances, you can qualify for a reasonable mortgage 12 to 18 months after your case concludes and your debts are discharged. The focus will be on your current income and down payment, as opposed to the prior bankruptcy. If you wait at least 2 years after the discharge, and show a history of good credit, you may also qualify for a Federal Housing Administration (FHA) loan guarantee, which can make the whole process much easier and smoother.
If you are struggling with a few unsecured debts, such as credit cards or payday loans, you may have success with debt consolidation. If you are facing other problems, such as home foreclosure, vehicle repossession, tax levies, and wage garnishment, debt consolidation is usually not enough.
Even if you want to consolidate or settle your debts, some creditors and lenders may refuse to participate. These creditors can then seek legal action against you, including lawsuits, judgments, and wage garnishment. Also, if a creditor chooses to settle the debt, they can actually send you a 1099-C at the end of the year, which could force you to pay taxes on the forgiven portion. Debt settlement can also take several years to complete, and you never know if the debts will actually go away.
If you are seeking full debt relief and wish to avoid the unknowns of debt settlement, bankruptcy may be a better option. You will be shielded from your creditors through the most powerful consumer protection law available.
There are other potential problems with debt settlement and consolidation. The companies are typically based in different states and are unfamiliar with Texas laws. Some companies offer empty promises for a significant amount of money and fail to provide any relief. The federal government has also investigated some of these companies for scams and other violations of state and federal law. Hiring one of these companies can be a huge mistake. You can learn more about debt consolidation companies by visiting the U.S. government website. Don’t be a victim.
Unlike debt consolidation (and the risks and problems associated with this option), bankruptcy is a legal and guaranteed way to resolve your debts. In most cases, you can significantly reduce or eliminate your debts. More importantly, you can avoid the numerous problems associated with debt settlement and debt consolidation.
Once you pay your pre-filing fees (including the legal fee, filing fee and credit report fee), the timing of your bankruptcy depends on the type of bankruptcy filed.
If you file for Chapter 7 relief, and your assets are exempt, the process takes about four to six months to complete. It’s important to discuss your property with an experienced bankruptcy attorney to ensure there are enough exemptions to avoid liquidation of the property. Most of our Chapter 7 cases qualify as “no asset” bankruptcies. However, on rare occasions, you may have property (such as a boat, jet ski, extra vehicle, or non-homestead real property) that cannot be exempted from the bankruptcy. In these “asset” bankruptcies, you can either turnover the property or buy it back from your Trustee. These cases will then be administered for a period of time (which can last 12 to 18 months or longer, depending on the asset and the speed of the Trustee to administer the asset). Your debts will be eliminated in four to six months, but an “asset” case may stay open longer than a “no asset” case due to the administration process.
If you file for Chapter 13, the process takes between three and five years to complete. Chapter 13 involves a repayment plan, where you pay your debts back over time. The majority of our Chapter 13 cases last 5 years, as this gives our clients more time to pay their debts.
As soon as you file a Chapter 7 or Chapter 13 bankruptcy, ALL collection efforts must stop. This is a primary reason to seek bankruptcy relief. Bankruptcy puts an end to all creditor harassment, including daily phone calls, lawsuits, judgments, garnishments, and levies.
A bankruptcy filing triggers the “automatic stay”, which is an automatic injunction prohibiting your creditors from continuing any collection activity during the bankruptcy process. The automatic stay can stop lawsuits, collection on a judgment, home foreclosure, and vehicle repossession.
The U.S. Bankruptcy Code permits a debtor to file more than one bankruptcy case in his or her lifetime, although there are time limitations and some procedural requirements to consider.
Here are some of the limitations and requirements:
- Chapter 7 filing to Chapter 7 filing: At least eight years must pass between Chapter 7 filings or the subsequent Chapter 7 will be dismissed.
- Chapter 7 filing to Chapter 13 filing: If a debtor received a Chapter 7 discharge and files a Chapter 13 within four (4) years of the previous filing, any unsecured, non-priority debts listed in the new filing must be paid in full (they cannot be discharged at the end of the bankruptcy plan).
- Chapter 13 filing to Chapter 7 filing: If a debtor received a Chapter 13 discharge but paid less than seventy (70) percent to his or her unsecured, non-priority debts and then files a Chapter 7 within six (6) years of the prior filing, his or her unsecured, non-priority debts that are included in the subsequent bankruptcy cannot be discharged.
- Chapter 13 filing to Chapter 13 filing: If a debtor received a Chapter 13 discharge and files a Chapter 13 within two (2) years of that discharge, his or her unsecured, non-priority debts that are included in the new bankruptcy case cannot be discharged.
If you filed for bankruptcy in the past and are contemplating a new case, it’s critical to meet with an experienced bankruptcy attorney to review your situation and ensure the process proceeds without any problems. The Westbrook Law Firm can help. We have assisted numerous clients with repeat filings — after a prior bankruptcy discharge or dismissal.
Over the years, the law has dramatically changed regarding student loans. In most cases, you will be responsible for student loan debt, including any loan for an “educational purpose.” Student loans are classified as “non-dischargeable” debts that cannot be eliminated through the bankruptcy process.
In extremely limited circumstances, you can petition the court to discharge the student loan debt (through a lawsuit known as an adversary filed against the lender), but the threshold is high and difficult to prove (such as long-term disability that prohibits you from paying the debt back at any point).
In a Chapter 13 bankruptcy, your student loans are treated like other unsecured debt and paid back at a percentage for three to fixe years. If you do not pay the balance in full through the bankruptcy, it will become due at the conclusion of the case (including all accrued interest).
In a Chapter 7 bankruptcy, you can’t discharge any of the student loan debt (unless you file an adversary as noted above), but you may be able to renegotiate the terms for a more reasonable payment going forward.
The U.S. Bankruptcy Code allows a married person to file individually or jointly with their spouse. However, even if you file separately, without your spouse, you must disclose his or her property, income for the last 6 months, bank accounts, and other information about your household.
If you and your spouse co-signed any loans or other debts, your creditors will hold both of you responsible for the debt. So if you file for bankruptcy without your spouse and try to discharge a mutual debt, your spouse’s credit report will reflect this action. In this situation, we advise our clients to file a joint bankruptcy to reduce or eliminate the obligation through the bankruptcy process.
If your debts are entirely in your name, then an individual bankruptcy may be the right choice, as you can eliminate the debt you personally owe, and your spouse’s credit will remain protected.
In Texas, car lenders can repossess your vehicle if you’re behind on payments – even if the deficiency occurred recently.
If your car payments are late, and you’re concerned about repossession, Chapter 13 bankruptcy can help. Chapter 13 allows you to keep your car, pay the balance over a three to five year repayment plan, and pay the lesser of your interest rate or 5.25% interest. Many of our clients file Chapter 13 for this significant protection.
If your car has already been repossessed, you can get it back, but you must file for Chapter 13 within 10 days after the repossession.
Filing for Chapter 13 bankruptcy can usually save your home from foreclosure and allow you to maintain possession, provided you initiate the bankruptcy proceeding before the scheduled foreclosure sale (which always occurs on the first Tuesday of each month in Texas). You must qualify for Chapter 13 relief and comply with the terms and conditions of the Chapter 13 repayment plan.
Unfortunately, many homeowners wait too long to file for bankruptcy and ultimately lose their homes for failing to act in time. Don’t let this happen to you.
Also, many homeowners may be waiting for approval of a loan modification. Most lenders will tell you to stop making payments and require you to submit and re-submit numerous documents during the “review” process. In many cases, the mortgage company may not approve the loan modification, leading to significant mortgage arrears. This happens all the time and could result in foreclosure. Never rely on your mortgage company to do the right thing.
If you are behind on your mortgage, are attempting to get loan modification, or have have received a notice of foreclosure, it’s critical that you take action now.
If you are struggling with unsecured debt, such as credit cards, medical bills, and payday loans, Chapter 7 may offer the best solution.
When you file for Chapter 7, you must turn over all non-exempt property to your bankruptcy trustee, which may include investment properties, extra vehicles, boats, recreational vehicles, stock/bonds, receivables, stocks/bonds and money in your bank account. Within four to six months after filing, you will receive a “discharge” from the Court, which eliminates all dischargeable debts. If you have non-exempt assets, the case can stay open for several more months (sometimes more than a year), as it takes time to administer the assets and make distributions to the creditors. But as for you and your debts, the discharge will occur within four to six months after filing.
In most cases, you will not lose essential property during a Chapter 7 bankruptcy, as state and federal law provide numerous property “exemptions” which exempt the property from liquidation. We rarely see clients with non-exempt property. Even if you have non-exempt property, Chapter 7 can still be a great solution for your situation, especially if you’re facing wage garnishment, large judgments and other collection efforts.
Chapter 13 bankruptcy is a debt relief solution where you can pay all of your debts (secured, priority, and unsecured) thorough a court-approved repayment plan. This type of bankruptcy is also known as a “reorganization bankruptcy.” If you qualify for Chapter 13, you must submit a monthly payment to a bankruptcy trustee who will then distribute your payments to the various creditors in your case.
Chapter 13 bankruptcy is the best option if you’re facing home foreclosure, vehicle repossession, or problems with the IRS.
Unlike Chapter 7 bankruptcy, Chapter 13 prevents liquidation of your non-exempt property (including additional cars, recreational vehicles, rental property, time share, etc.).
In 2005, Congress amended the federal bankruptcy laws. Debtors must now submit a full disclosure of income from all sources for the six-month period prior to filing to determine whether they can pay their debts – even if it’s just a small percentage of the total amount owed.
Despite these strict bankruptcy laws, most of our clients who have requested a Chapter 7 bankruptcy have qualified. If you don’t qualify for Chapter 7, you can still file for Chapter 13, where you pay a percentage of your unsecured debt over time. The Chapter 13 payment is based on what you can afford to pay (meaning you are not required to pay everything back unless you have the ability to do so).