FAQ

Chapter 7

What is Chapter 7 and how does it work?

Chapter 7 is that part (or Chapter) of the Bankruptcy Code that deals with liquidation. In a Chapter 7 case, the debtor must turn his or her nonexempt property, if any exists, over to a trustee who then converts the property to cash and pays the debtor's creditors. In return, the debtor receives a Chapter 7 discharge.

Does a person lose all of his or her property by filing under Chapter 7?

Usually not. Certain property is exempt and cannot be taken by creditors, unless it is encumbered by a valid mortgage or lien. A debtor is usually allowed to retain his or her unencumbered (or unsecured) exempt property in a Chapter 7 case. Texas has very strong exemption laws--it is very unusual for a debtor to have to give up any property (including house, cars, and retirement accounts) in a Chapter 7 case.

How does filing for a Chapter 7 case affect collection and other legal proceedings that have been filed against the debtor in other courts?

The filing of a Chapter 7 case automatically stays (or stops) virtually all collections and other legal proceedings pending against the debtor. A few days after a Chapter 7 case is filed, the court mails out a notice to all creditors ordering them to refrain from any further action against the debtor. If necessary, this notice may be served early by the debtor or debtor's lawyer. Any creditor who intentionally violates the automatic stay may be held in contempt of court and may be liable to the debtor in damages. Criminal proceedings and actions to collect alimony, maintenance, or support from exempt property or property acquired by the debtor after the Chapter 7 case was filed are not affected by the automatic stay. The automatic stay also does not protect cosigners and guarantors of the debtor, and a creditor may continue to collect debts of the debtor from those persons after the debtor files a Chapter 7 case.

How does filing under Chapter 7 affect a person's credit rating?

It will usually worsen it, if that is possible. However, some financial institutions openly solicit business from persons who have recently filed under Chapter 7, apparently because it will be at least 8 years before they can again file under Chapter 7. If there are compelling reasons for filing a Chapter 7 that are not within the debtor's control (such as illness or injury), some credit rating agencies may take that into account in rating the debtor's credit after filing.clicking here.

What is a Chapter 7 discharge?

It is a court order releasing a debtor from all of his or her dischargeable debts and ordering the creditors not to attempt to collect them from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay. Some debts, however, are not dischargeable under Chapter 7.

What debts are not dischargeable under Chapter 7?

All debts of any kind or amount including out-of-state debts are dischargeable under Chapter 7 except the debts listed below. The

following is a list of the most common debts that are not dischargeable under Chapter 7.

Most tax debts and debts that were incurred to pay federal tax debts.
Debts for obtaining money, property, services, or credit by means of false pretenses, fraud, or a false financial statement, if the creditor files a complaint in the case.
Debts not listed on the debtor's Chapter 7 forms, unless the creditor knew of the case in time to file a claim.
Debts for fraud, embezzlement, or larceny, if the creditor files a complaint in the case.
Debts for alimony, maintenance, or support and certain other divorce-related debts including property settlement debts.
Debts for intentional or malicious injury to a person or property of another, if the creditor files a complaint in the case.
Debts for certain fines and penalties.
Debts for educational benefits and student loans, unless a court finds that not discharging the debt would impose an undue hardship on the debtor and his or her dependents.
Debts for personal injury or death caused by the debtor's operation of a motor vehicle while intoxicated.
Debts that were or could have been listed in a previous bankruptcy case of the debtor in which the debtor did not receive a discharge.

What is a reaffirmation agreement?

A reaffirmation is a promise to pay a certain debt despite filing for Bankruptcy. In other words, you are re-promising to pay a debt that would otherwise be considered dischargeable. A reaffirmation agreement is most often used with secured loans such as vehicles and personal property. You are never required to reaffirm a debt. Our office will guide you on whether it seems appropriate to reaffirm a debt or not.

Can I surrender my house or car in a Bankruptcy?

Yes, you always have the option to surrender a piece of secured collateral for value in a Bankruptcy. Many times clients will surrender vehicles that they are upside down on in a Bankruptcy filing. However, you can surrender any piece of secured collateral, even your home.

Will I be able to get new credit after I file?

The short answer is yes. Most people are able to obtain new credit after they file for Bankruptcy. Of course, the lender is a 3rd party and you will have to comply with their lending standards. Most of our clients are able to purchase new vehicles after their discharge goes through. You may even be able to buy a house after a couple of years if you manage your credit right correctly after your discharge.

May a husband and a wife file jointly under Chapter 7?

Yes. A husband and wife may file a joint petition under Chapter 7. If a joint petition is filed, only one set of bankruptcy forms is needed and only one filing fee is charged.

Under what conditions should both spouses file under Chapter 7?

Both husband and wife should file if one or more substantial dischargeable debts are owed by both spouses. If both spouses are liable for a substantial debt and only one spouse files under Chapter 7, the creditor may later attempt to collect the debt from the nonfiling spouse, even if he or she has no income or assets.

When must a debtor appear in court in a Chapter 7 case and what happens there?

Most debtors never appear in court; however, they must attend a non-court hearing called the "meeting of creditors". This hearing usually takes place about a month after the case is filed. At this hearing the debtor is put under oath and questioned about his or her debts and assets by the hearing officer or trustee. In most Chapter 7 consumer cases no creditors appear in court; but any creditor that does appear is usually allowed to question the debtor.

What happens after the meeting of creditors?

After the meeting of creditors, the trustee may contact the debtor regarding the debtor's property, and the court may issue certain orders to the debtor. These orders are sent by mail and may require the debtor to turn certain property over to the trustee, or provide the trustee with certain information. If the debtor fails to comply with these orders, the case may be dismissed and the debtor may be denied a discharge.

Chapter 13

What is Chapter 13 and how does it work?: Chapter 13 is that part (or Chapter) of the Bankruptcy Code under which a person may repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court. In a Chapter 13 case, the debtor must submit to the court a plan for the repayment of all or portion of his or her debts. The plan must be approved by the court to become effective. If the court approves the debtor's plan, creditors will be prohibited from collecting their claims from the debtor during the course of the case. The debtor must make regular payments to a person called the Chapter 13 Trustee, who collects the money paid by the debtor and disburses it to creditors in the matter called for in the plan. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his or her dischargeable debts.
How does Chapter 13 differ from Chapter 7 for a debtor?: The basic difference between Chapter 7 and Chapter 13 is that under Chapter 7 the debtor's nonexempt property (if any exists) is liquidated to pay as much as possible of the debtor's debts, while in most Chapter 13 cases a portion of the debtor's future income is used to pay as much of the debtor's debts as is feasible considering the debtor's circumstances. As a practical matter, under Chapter 7 discharge, the debtor loses all or most of his or her nonexempt property and receives a Chapter 7 discharge, which releases the debtor from liability for most debts. Under Chapter 13, the debtor usually retains his or her nonexempt property, must pay off as much of his or her debts as the court deems feasible, and receives a Chapter 13 discharge, which is broader than a Chapter 7 discharge and releases the debtor from liability for several types of debts that are not dischargeable under Chapter 7.
How does Chapter 13 differ from a private debt consolidation loan?: Bankruptcy law has the force of federal law. All creditors are required to participate in the Bankruptcy process and cannot engage in unilateral collection efforts. The court has the power to prohibit creditors from attaching or foreclosing on the debtor's property, to force unsecured creditors to accept a Chapter 13 plan that pays only a portion of their claims, and to discharge a debtor from unpaid portions of debts. Private debt consolidation services have none of these powers.
What is a Chapter 13 plan?: It is a written plan presented to the bankruptcy court by a debtor that states how much money or other property the debtor will pay to the Chapter 13 trustee, how long the debtor's payments to the Chapter 13 trustee will continue, how much will be paid to each of the debtor's creditors, which creditors will be paid outside the plan, and certain other technical matters.
What debts may be paid under a Chapter 13 plan?: Any debts whatsoever, whether they are secured or unsecured. Even debts that are non dischargeable, such as debts for student loans, alimony or child support, may be paid under a Chapter 13 plan.
Must all debts be paid in full under a Chapter 13 plan?: No. While priority debts, such as debts for alimony, maintenance and support and debts for taxes, and fully secured debts must be paid in full under a Chapter 13 plan, only an amount that the debtor can reasonably afford must be paid on most debts. The unpaid balances of most debts that are not paid in full under a Chapter 13 plan are discharged upon completion of the plan.
How much of a debtor's income must be paid to the Chapter 13 trustee under a Chapter 13 plan?: Usually all of the disposable income of the debtor and the debtor's spouse for a three to five-year period must be paid to the Chapter 13 trustee. There is a test to determine how much "disposable income" you have. This determines the amount of unsecured debt you will have to pay back. Our office will tell you home much disposable income you have based on the Bankruptcy Laws.
When must the debtor begin to make payments to the Chapter 13 trustee and how must they be made?: The debtor must begin making payments to the Chapter 13 trustee within 30 days after the debtor's plan is filed with the court. The payments must be made regularly, usually on a weekly, bi-weekly, or monthly basis. If the debtor is employed, some courts require the payments to be made by the debtor's employer; otherwise, the payments can be made by either the debtor or the debtor's employer.
Will a person lose any property if he or she files under Chapter 13?: Usually not. Under Chapter 13, creditors are usually paid out of the debtor's income and not the property. However, if a debtor has a valuable nonexempt property and has insufficient income to pay enough to creditors to satisfy the court, some of the debtor's property may have to be used to pay creditors.
What if debtor later decides to discontinue the Chapter 13 case?: The debtor has the right to either dismiss a Chapter 13 case or convert it to Chapter 7 at any time for any reason. However, if the debtor simply stops making the required Chapter 13 payments, the court may compel the debtor or the debtor's employer to make the payments and comply with the orders of the court. Therefore, the debtor who wishes to discontinue a Chapter 13 case should do so through his or her attorney.