Bankruptcy Frequently Asked Questions
1. What is bankruptcy?
Bankruptcy is a law that allows protection to people owing money they cannot pay. There are two types of bankruptcy proceedings. Both proceedings are designed to relieve the debtor of the pressure of debt collection. If a debtor has no income left after his reasonable monthly expenses, they may be a candidate for a Liquidation under Chapter 7 of the Bankruptcy Code. This type of bankruptcy calls for a discharge of most debt in return for the turning over of all non-exempt assets to the Court. The non- exempt assets are sold and distributed among creditors. A discharge is an order of the Court permanently preventing any further collection efforts. Most cases do not have any non-exempt property.
The other type of bankruptcy is a reorganization. There are several types of reorganizations. The most widely used is Chapter 13. It allows various types of debt to be restructured and paid over as many as sixty months. A discharge is only received after at least some of the debt is paid.
Can creditors or the Court take my house?
In Texas, your homestead is protected from most creditors. As long as the monthly mortgage payments are made, you will typically not lose it in a bankruptcy proceeding. It is important to properly determine whether or not a home is a homestead prior to filing a bankruptcy. For instance, if a homestead were purchased within 1215 days before filing a case, it may not have any protection. This becomes a problem for a recent move to Texas, but not for someone trading one homestead for another
3. I hear you can't do anything to the Internal Revenue Service. Is that true?
No. The Internal Revenue Service is subject to the Automatic stay provisions of the Bankruptcy Code. IRS
collection activities, even levies, must stop when a bankruptcy is filed. Taxes can be restructured and paid over sixty months. In many cases, taxes over three years old may be completely discharged. It is important to fully review any outstanding tax liabilities before a bankruptcy is filed. Sometimes the difference between owing taxes and having them discharged is knowing the correct time to file
4. Can I continue to operate a business and still go into bankruptcy?
Yes, in many situations a business may continue to operate in bankruptcy. This is particularly so in Chapter 13. The privilege of operating under bankruptcy protection is balanced with restrictions on how money is spent and
requirements for reporting business activity to the Court.
5. Do I need a lawyer to file bankruptcy?
You are not required to hire a lawyer to file a bankruptcy. The law allows anyone to represent themselves in Court. Many bankruptcies appear simple on the surface. Under the 2005 amendments, the document and filing requirements are quite burdensome. Few pro se filers have been successful in completing their cases.
Internet Typing services and Greensheet paralegals offer "forms services." These services will help lead you
through the bankruptcy schedules, but are unable to assist you with advice. They also will not be in Court with you
to help you. The problem with attempting a pro se bankruptcy is the risk that is taken. If a bankruptcy is done
improperly, assets can be lost, discharge of debts denied, and even in extreme cases, Federal criminal charges
6. Will I ever get credit again if I file a bankruptcy?
Yes, most people receive credit card solicitations within months after filing a bankruptcy. Home loans become
available after usually two years, Vehicle loans are available even sooner. The downside is that you will
initially be paying higher interest rates and down payments.
7. I hear bankruptcy is expensive. If I can't pay my bills, how can I pay a lawyer?
Consumer bankruptcy is one of the least expensive areas of the law. The Bankruptcy Court has supervision and
regulation of fees charged. A Chapter 7 case will usually cost around $2000. A Chapter 13 case can cost an
average of $3500. Business cases and those with more litigation will have higher fees.
8. Can I continue to operate my business while in bankruptcy?
In many cases, "Yes." It will depend on the type of business and the type of bankruptcy being filed. I have
filed hundreds of cases involving small businesses that continued to operate. A business bankruptcy filing is
more complex than a consumer case. You need to hire an attorney with the experience necessary to correctly
prepare and handle the case.
9. Do I have to go to court a lot if I file a bankruptcy?
A Chapter 7 usually includes one trip to the Federal Courthouse. In a Chapter 13, most cases also require only one.
10. Can bankruptcy stop foreclosure of my home?
Yes, the automatic stay provisions of the Bankruptcy Code prevent any creditor action, including foreclosure and
repossession. A Chapter 13 Reorganization is designed to restructure mortgage arrears. The bankruptcy needs to be filed before the foreclosure sale takes place. The sale takes place on the first Tuesday of each month at the county courthouse. Once a Chapter 13 is filed, the debtor must be able to pay the Chapter 13 Plan payment which includes the regular mortgage payments. The Court will require a Wage Order to deduct the payment directly from your paycheck. If circumstances exist to make this impractical, the Court can waive the requirement.