Bankruptcy may seem like a daunting option, but for many Texans struggling with overwhelming debt, it can offer a path to financial freedom. Understanding the process and its implications is crucial before making any decisions. Here are 7 essential facts to know before filing for bankruptcy in Texas:
There are Different Types of Bankruptcy
The two most common types of bankruptcy for individuals are Chapter 7 and Chapter 13.
- Chapter 7: This is known as “liquidation” bankruptcy. The court appoints a trustee who sells your non-exempt assets to repay creditors. In most cases, however, your essential assets are protected by Texas exemptions. Once the process is complete, most of your remaining debts are discharged.
- Chapter 13: This is a “repayment plan” bankruptcy. You propose a plan to repay your creditors over a 3-5 year period. If the court approves your plan and you make all payments, your remaining debts are discharged.
You Need to Qualify for Chapter 7
Not everyone qualifies for Chapter 7. You must pass the “means test” which compares your income to the median income for your family size in Texas. If your income is below the median, you automatically qualify. If your income is above the median, you must pass a more complex calculation.
Exemptions Protect Your Property
Texas law offers generous exemptions that protect your essential assets from being sold in a Chapter 7 bankruptcy. These exemptions include:
- Your home equity (up to a certain limit)
- Your car (up to a certain value)
- Household goods and furniture
- Retirement savings
- Personal belongings
Bankruptcy Stops Debt Collection
Filing for bankruptcy triggers an “automatic stay” that immediately stops all debt collection activities, including lawsuits, wage garnishments, and repossessions. This gives you breathing room and time to reorganize your finances.
Credit Score Will Take a Hit
Both Chapter 7 and Chapter 13 bankruptcies will negatively impact your credit score for several years. However, responsible credit management can help rebuild your credit over time.
Filing Fees and Legal Costs
There are filing fees associated with bankruptcy, and you may also need to pay a bankruptcy attorney to represent you. Consider exploring pro bono legal services if you have limited financial resources.
Seeking Professional Help is Key
Navigating the bankruptcy process can be complex. Consulting with a qualified Texas bankruptcy attorney can ensure you choose the right type of bankruptcy, understand the process and its implications, and maximize your chances of success.
- Texas Law Help: https://texaslawhelp.org/money-debt/bankruptcy
- American Bar Association: https://www.americanbar.org/groups/business_law/about/committees/business-bankruptcy/
- National Foundation for Credit Counseling: https://www.nfcc.org/
Making the Right Decision
Filing for bankruptcy is a significant financial decision. Weighing the pros and cons and seeking professional guidance can help you determine if it’s the right option for your situation. Remember, bankruptcy can offer a fresh start and a chance to rebuild your financial future.
If you have questions about filing for bankruptcy in Texas, call 972-775-3500 now or schedule a free consultation with Lundberg Law here.