Bankruptcy FAQs
Below is a list of commonly asked questions involved in bankruptcy cases. Please click on the individual links or scroll through the whole page. In addition, feel free to contact us if your specific question is not addressed in the below list:
- What are the types of bankruptcy cases?
- What if I’m obligated to pay back owed child support, income taxes, or property taxes?
- Am I free to choose between Chapter 7 and Chapter 13?
- What property am I allowed to keep in bankruptcy?
- Am I allowed to keep my house and car through the bankruptcy process?
- What is an exemption?
- How long does it take to file for bankruptcy?
- Do I have a hearing?
- Who is the Trustee?
- What documents are necessary to file bankruptcy?
- How do you get credit after filing for bankruptcy?
- May I keep a credit card while I am in bankruptcy?
- How long does a bankruptcy stay on my credit?
- What is a FICO score?
- What happens to my unsecured debt in bankruptcy?
- Are some debts non-dischargeable like student loans, child support, alimony, and taxes?
- What is the difference between secured and unsecured debts?
- What is a lien?
- What does it mean to reaffirm a debt?
- What happens if my ex-spouse stops paying on a debt assigned to him/her in the divorce decree to pay?
- Does my divorce decree protect me from my creditors if my ex-spouse files for bankruptcy?
- What is a bankruptcy discharge?
- What is a “non-dischargeable” debt?
- What is the difference between a signer and co-signer on a loan?
What are the types of bankruptcy cases?
Chapter 7 is the most well known of the various bankruptcy cases. It is generally available for those who have no money left at the end of the month after paying for their normal living expenses including house/rent payments and car payments. Under Chapter 7, you receive a discharge of your personal liability on all of your debts within a matter of months after filing. See What Happens in Chapter 7 for further information.
Chapter 13 is known as financial reorganization. Most who file under Chapter 13 do so because they are behind on a house or car payment or have money left over at the end of the month to pay at least a small portion back to their unsecured creditors. Chapter 13 lasts for 3 to 5 years and once completed you receive a discharge of your personal liability on your debts. See What Happens in Chapter 13 for further information.
What if I’m obligated to pay back owed child support, income taxes, or property taxes?
A Chapter 13 would help you because you would have 3 to 5 years to become current through your Chapter 13 Plan on any back owed child support, income taxes, or property taxes. Moreover, some back owed income taxes might actually be dischargeable. See What Happens in Chapter 13 for further information
Am I free to choose between Chapter 7 and Chapter 13?
Chapter 13 is always available to those who earn income. However, Chapter 7 will in some instances require the application of a test to determine one’s ability to qualify for Chapter 7. Still, most who qualified for Chapter 7 before Congress reformed the law in 2005 still qualify now under the new rules that are in place.
What property am I allowed to keep in bankruptcy?
In Chapter 7 or 13 one is generally able to keep all of their property. In Chapter 13 there is no risk of you losing your property. Only in Chapter 7 would one risk losing any property. However, the vast majority of Chapter 7 filers actually lose no property because all of their property is exempt (see What is an exemption?) including retirement accounts, houses, cars, bank accounts, etc... Texas law provides for generous exemptions so most of the time the question of losing property turns out to be a complete non-issue in Chapter 7.
Am I allowed to keep my house and car through the bankruptcy process?
Yes. If you are current on your house and car payments, then you do not stand to lose either asset to the finance company. Moreover, in Chapter 13, the Trustee is prohibited from taking your house and car.
In Chapter 7, the Trustee would be prohibited under almost every conceivable scenario from taking away your house or car due to the generous exemptions that are allowed under Texas law.
What is an exemption?
An exemption is your legal right under bankruptcy law to choose property that will not be included in your bankruptcy proceeding. Typically, all property that bankruptcy filers own is exempt which means that the bankruptcy filer keeps all property throughout the bankruptcy proceeding and after the bankruptcy proceeding is over.
How long does it take to file for bankruptcy?
Not long. In fact some cases can be filed in a week or maybe even the next day after you contact our law firm because of the personal handling of your case.
Do I have a hearing?
Yes. You will have a hearing about 30-45 days after your case is filed with the Trustee and your attorney will be present with you (the “341 Meeting of Creditors” although creditors very rarely attend the hearing). The Judge assigned to your case will not be present. The Trustee will verify the accuracy of the legal documents filed on your case. The hearing will generally last about 4-5 minutes and then you are free to go. Mr. York will prepare you for the questions that will be asked at the hearing. Other hearings besides this one are rare.
Who is the Trustee?
The Trustee is the government’s bankruptcy administrator who verifies with your attorney that your bankruptcy case complies with the law.
What documents are necessary to file bankruptcy?
Your most recent year’s tax return or tax transcript plus some of your pay stubs are required. Some other documents are required as well. A complete easy to read list will be provided to you later in the consultation.
How do you get credit after filing for bankruptcy?
Please see Bankruptcy and Your Credit.
May I keep a credit card while I am in bankruptcy?
Yes. If you always pay the credit card in full each month, you may keep the credit card out of your bankruptcy case.
How long does a bankruptcy stay on my credit?
Generally, a Chapter 13 will stay on your credit for 7 years while a Chapter 7 will stay on your credit for 10 years. This is not to say that you cannot rebuild your credit. See Bankruptcy and Your Credit.
What is a FICO score?
A FICO score is a method to determine the likelihood that someone will repay their debt. It is developed and administered by Fair Issac & Co. and used by creditors to determine the credit worththiness of those seeking credit.
What happens to my unsecured debt in bankruptcy?
Under Chapter 7, you receive a discharge of your personal liability on all of your unsecured debts within a matter of months after filing. Under Chapter 13, you receive a discharge of your personal liability on the unsecured debts that still remain unpaid after your Chapter 13 plan is completed. Your unsecured creditors are forever legally barred from pursuing you in the future for payment on the discharged debts.
Are some debts non-dischargeable like student loans, child support, alimony, and taxes?
Student loans are not always non-dischargeable. One has to show that the repayment of the loans in the future would constitute an undue burden to achieve a discharge (which is a hard standard to meet). Other debts like child support, alimony, and certain kinds of tax debts are non-dischargeable.
What is the difference between secured and unsecured debts?
Secured debts are debts where a creditor retains a lien on someone’s property to guarantee that the creditor will be paid back by the party granting the lien. If the creditor is not paid back, the creditor might foreclose on the property on which the creditor has a lien.
Unsecured debts are debts where the creditor retains no lien on any property guaranteeing a pay back.
What is a lien?
A lien is a creditor’s contractual right to foreclose on the debtor’s property if the debtor does not pay money to the creditor as agreed in the contract.
What does it mean to reaffirm a debt?
A Chapter 7 will discharge you of your personal liability on all debts including car finance loans and home mortgage loans. Your car finance company or home mortgage company will send a document called a “reaffirmation agreement” for you to sign. When you sign the agreement, you are personally liable again on the loan. Therefore, you should only sign the agreement if you truly believe you can afford the asset in question.
What happens if my ex-spouse stops paying on a debt assigned to him/her in the divorce decree to pay?
You would still be potentially liable on the debt. The divorce judge cannot take your name off of the loan contract if you signed the loan contract. However, a bankruptcy case can stop the creditor from pursuing you for payment.
Does my divorce decree protect me from my creditors if my ex-spouse files for bankruptcy?
No. The divorce decree does not modify the underlying loan contract so the creditor can require all payment from you solely if you signed the loan contract. A bankruptcy case for you might be the only viable solution to use against the creditor.
What is a bankruptcy discharge?
A bankruptcy discharge is an order issued by the bankruptcy court declaring that you are no longer personally liable on the debts that were included in the bankruptcy case. In Chapter 7, the discharge is typically granted about 60-90 days after the hearing with the Trustee. In Chapter 13, the discharge is granted after the completion of the three to five year term of the bankruptcy case.
What is a “non-dischargeable” debt?
A “non-dischargeable” debt is a debt that you will still be personally liable for even when the bankruptcy case is discharged. Typical examples are child support, alimony, and student loans.
What is the difference between a signer and co-signer on a loan?
A signer on a loan is the individual who is primarily liable for the payments under the loan. A co-signer is secondarily liable for payments on the loan. This means that if the signer defaults on the payments, the creditor will then look to the co-signer for payment on the loan.
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