You’re rolling along, paying your bills, even putting a bit of money in savings each month. You’re prepared for a rainy day...but not a tsunami. Then one day, tragedy strikes. You lose your job or a family member gets sick and the medical bills start piling up. Now you’re struggling to make your mortgage payments. What can you do? You’re thinking if things get really bad, you can just file for bankruptcy. Truth is, you’re not really sure what that means. It just sounds like a way out. Bankruptcy may be the answer to your troubled prayers. There are several different types of bankruptcies.
Chapters 7, 9, 11, 12, 13, And 15
There are six different types of bankruptcies outlined in the U.S. Bankruptcy Code. The numbers refer to the chapters in the United States Bankruptcy Code. Unless you’re a municipality or doing business with a foreign country, chapters 9 and 15 won’t apply to you. Although you may own a family farm (not a far-fetched possibility in Texas), chapter 12 is not likely a consideration for you. Most folks have heard about the other types: Chapters 7, 11, and 13. Which type is right for you?
Chapter 7
Think of Chapter 7 bankruptcy as the “you can’t squeeze blood out of a stone” type of financial relief. When an individual just can’t come up with the cash – even given extra time – they will file for Chapter 7 bankruptcy. Businesses can also file under Chapter 7 if they want to liquidate all their assets and close up shop.
In fact, Chapter 7 bankruptcy is referred to as “liquidation.” It’s a way of starting over. Big, bad debt is holding you down and you can legally cry “uncle.” (For those a bit younger, this is when the neighborhood bully would hold you down until you would scream “uncle.” Why that particular word? Why not?)
Can you keep your home if you file for Chapter 7 bankruptcy? The answer is: in Texas YES!!! All equity in your home in Texas is protected by Texas law. In fact, only one other state is like this – Florida. So be very happy that you are a Texas when it comes to home ownership. By filing for bankruptcy in Texas your can be protected.
There are many debts that typically cannot be discharged under Chapter 7 bankruptcy. (A discharged debt is one that you are no longer personally liable for. The creditor cannot come after you for it, say, through collections.) It’s a pretty long list and includes back child support, alimony, and student loans. It can also applied to luxury items bought on the eve of filing bankruptcy. So, if you think that you can go buy a 30K engagement ring for your honey prior to filing Chapter 7 bankruptcy and not have to pay for it, think again. Ultimately, it is the judge who gives the final word on whether a debt can be discharged.
Chapter 11
This type of bankruptcy is for commercial businesses who want to remain in business. An agreement is made with creditors to get at least some of their money back without forcing the enterprise to close its doors.
Chapter 13
Chapter 13 bankruptcy is for those who have a regular income and want to pay their creditors. They just need more time and perhaps some debt relief. If you’re in debt up to your ears, want to do the right thing, but not lose your home, Chapter 13 bankruptcy may be right for you.
Under Chapter 13 bankruptcy you can discharge debts that are not allowable under Chapter 7 bankruptcy. Items such as alimony and student loans. A plan to payback your creditors is created and must be approved by a judge. Your payments go through a trustee. Over the life of the plan (usually three to five years), you deal with the trustee who in turn deals with the creditors. Any collection activity must stop and your creditors cannot take further legal steps to collect your outstanding debt.
Exemptions
Exemptions are laws that the stops creditors from taking ANY of your property. There is a list of federal exemptions and a list of state exemptions. In Texas, you pick one list to work from. The Texas list of exemptions is more generous. It’s also quite interesting. You can exempt up to two firearms, your family bible, and some of your pets. There is a total exemption limit depending on your marital status.
Don’t Go It Alone!
Bankruptcy is not the right choice for everyone, but it may be the right choice for you. Don’t go it alone! Find a reputable bankruptcy attorney to explain your options and walk you through each step of the process. It just may save your home. If you’re in the Dallas / Fort Worth area, consider Chris Lee (contact info, etc.) We have referred many clients to Mr. Lee and his firm has always been great to work with.
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