CHAPTER 7

BANKRUPTCY – What You Need to Know

ERIN B. SHANK CENTRAL TEXAS BANKRUPTCY ATTORNEY

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Filing a Chapter 7 bankruptcy is the quickest and most efficient way to alleviate financial strain and get you back on your road to a fresh financial start!

The recent financial crisis in the United States has led to record levels of

unemployment, an unprecedented number of foreclosures, and millions of

hard-working people who are finding it harder and harder to keep their heads

above water financially. If you find yourself falling farther and farther

behind with your bills, have been notified that your home is in foreclosure, or

fear that you might lose part of your paycheck to a wage garnishment, filing

a bankruptcy case stops these collection actions and can be a huge relief.

Filing a Chapter 7 bankruptcy is the quickest and most efficient way to

alleviate financial strain and get you back on your road to a fresh financial

start!

THE U.S. BANKRUPTCY CODE

The U.S. Congress has established laws that allow people to rid themselves of

debt and keep their exempt assets. These laws are found in the U.S.

Bankruptcy Code, a federal law that is applicable in all fifty states. Although

various state laws do come into play when a bankruptcy case is filed, most of

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the laws affecting bankruptcy are federal and are found in the U.S.

Bankruptcy Code.

HOW IS A CHAPTER 7 BANKRUPTCY DIFFERENT FROM OTHER

CHAPTERS?

A Chapter 7 case is the most common type of bankruptcy filed in America.

Because of our strong exemption laws, Debtors filing Chapter 7 in Texas are

allowed to keep virtually all of their assets and discharge their debts. The

only debts not dischargeable if a Chapter 7 case is filed are student loans,

some taxes (some taxes are actually dischargeable), child support and debts

incurred while driving while intoxicated or under the influence of drugs.

Chapter 7 cases last only approximately three to four months and your wages

are not garnished. It is the quickest, most efficient type of bankruptcy and

should be considered the “first choice” if you are looking at bankruptcy relief.

WHAT HAPPENS IF I FILE A CHAPTER 13 BANKRUPTCY CASE?

Chapter 13 is another type of bankruptcy available for individuals with

financial challenges. In a Chapter 13 case, the Debtor proposes a plan to

repay, at least a portion of the unsecured debt, over a three to five year

period. If a Chapter 13 is filed, the individual will actually be in an active

bankruptcy case for three to five years, with his/her wages being garnished

for the entire three to five year life of the Chapter 13 case. If an attorney is

recommending a Chapter 13 case as the only alternative for your financial

strains, you may want to seek a second opinion.

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WHAT IS THE MEANS TEST?

In 2005, Congress amended the Bankruptcy Code to include a complicated

form commonly referred to as the “Means Test”. This form most be

completed by Debtors filing both Chapter 7 and Chapter 13 cases. The form

actually requires that the Debtor’s income received in the six months before

the case be calculated and then compared to income of others in the

Debtors’ zip code according to the census. The form is actually quite

complicated and therefore the assistance of an experienced bankruptcy

attorney is strongly advised. However, do not think that your income

automatically makes you qualified for only a Chapter 13, not a Chapter 7.

The means test is required to be completed and filed in order to file both

Chapter 7 and Chapter 13 cases and an experienced bankruptcy attorney can

complete the form accurately and completely as long as you provide the

attorney all of your pay stubs for the six months preceding the filing of the

case and supply your attorney with the amount of other expenses and bills

that you must pay each month.

WHAT IS THE PROCESS FOR A CHAPTER 7 BANKRUPTCY?

A chapter 7 bankruptcy begins when the petition is filed with the bankruptcy

court. Prior to filing the bankruptcy petition, the debtor must take a brief

consumer credit counseling course online. The minute the bankruptcy case if

filed, an injunction is in place stopping all collection activity, including

foreclosure, garnishment, lawsuits, harassing phone calls, etc. When the

bankruptcy case is filed, complicated documents called Schedules, Statement

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of Financial Affairs and a Means Test must also be filed with the Court.

These documents are complicated and signed under the penalty of perjury.

Therefore, hiring an attorney to assist you complete these forms is highly

advisable. When the case is filed, a Chapter 7 Trustee is also automatically

appointed who reviews the documents filed in the case and conducts a brief

meeting with the client and the client’s attorney, which is commonly referred

to as a Section 341 meeting. The client responds to the Trustee’s questions

under penalty of perjury, so it is very important that the testimony is truthful.

The attorney who filed the case should attend this meeting with the Trustee.

Most Section 341 meetings only last five to ten minutes. The Debtor must

take a Debtor Education course, which is typically an online video or DVD,

and the Debtor is discharged approximately 60 days after the Section 341

meeting is held.

CAN I KEEP MY HOUSE AND CAR IN A CHAPTER 7

BANKRUPTCY?

Absolutely! However, in order to keep your home and your car, you must

continue to pay the lender who loaned you the money to purchase that asset,

commonly referred to as the Purchase Money Lender. Due to strong

exemption laws in Texas, you can also keep all of the contents of your home

and tools of your trade as long as those assets are worth under $60,000.00

the day that the bankruptcy case is filed. IRA’s and retirement accounts are

exempt as long as they are less than $1 million. In Texas, it is rare that an

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individual is not able to exempt all of the assets owned. Only in the rarest of

cases is any asset “liquidated” in a Chapter 7 case.

WILL ALL OF MY DEBTS BE DISCHARGED?

A chapter 7 bankruptcy will result in almost all debts being discharged. There

are a few types of debts that cannot be discharged through a Chapter 7

bankruptcy filing. Some common examples of debts that cannot be

discharged include:

Certain types of tax debts

Spousal and child support

Student loans

Debts for personal injury caused by driving under the influence of

drugs or alcohol.

WHAT WILL HAPPEN TO MY CREDIT AFTER I FILE CHAPTER 7

BANKRUPTCY?

While it is certainly understandable that debtors worry about their credit

post-bankruptcy, the reality is that your credit rating is likely not good now if

you are considering bankruptcy. The good news is that for many debtors,

their credit rating actually improves as soon as the bankruptcy is discharged.

This occurs for a number of reasons. First, your debt to income ratio typically

improves significantly the day the bankruptcy is discharged. In addition,

creditors know that you will not be able to file another Chapter 7 case for

eight years. Shredding unsecured debt can also give you breathing room to

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bring past-due accounts such as your mortgage current. Many clients are

able to discharge debts secured by cars that the Debtor no longer wants to

own. These clients then purchase new cars while they are in a Chapter 7

bankruptcy. Not only do they have more dependable transportation, the

new car financing helps improve their credit. Most Debtors are able to obtain

a car loan for a new or used vehicle during the Chapter 7 case and

immediately after the Chapter 7 discharge. Clients with steady and

sufficient income can even obtain a mortgage to purchase a home within two

years after filing a Chapter 7 case. Many clients have such large unsecured

debt, they could not pay all of that debt off in two years. Therefore, filing a

Chapter 7 case, discharging that debt, using the funds that they were using

to pay the unsecured debt to save for a down payment for the purchase a

home, can be a responsible way to address financial concerns.

If you think that filing a Chapter 7 bankruptcy is the solution to your financial

difficulties and you live in Central Texas, please feel free to call our offices in

either Waco or Killeen, to schedule a free initial consultation - our phone

number is 254-296-1161. In just a few short months you may finally be in a

position to keep your head above water and start planning for a better future.

REFERENCES

Texas Bankruptcy Law, Texas Bankruptcy Exemptions

NOLO, Texas Bankruptcy Exemptions

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About the Author About the Author

Erin B. Shank

With extensive training and years

of experience helping families

throughout Central Texas, Erin B.

Shank is here to help you conquer

your financial obstacles. Whether

you need guidance and advice

regarding bankruptcy, debt

consolidation, tax debt or other

financial problems, our friendly and

qualified team can help you find

solutions that will enable you to

manage or eliminate your debt.

Erin B Shank, PC

1902 Austin Avenue Waco, TX 76701 (254) 296-1161

1711 East Central Texas Expressway

Suite 107 Killeen, TX 76541 (254) 690-4110

www.centraltexasbankruptcy.com