Chapter 7 Bankruptcy in Texas

Click the links for general information on the following topics!

  1. What is Chapter 7?
  2. Timeline
  3. Means Test
  4. Is Chapter 7 an option for me?
  5. Credit Counseling Requirements
  6. Full Disclosure of Debts
  7. The Process of Filing
  8. The Automatic Stay
  9. What can I do to make getting a Chapter 7 discharge easier?
  10. Exemptions
  11. But I want to keep my car!
  12. Completing the Process
  13. What’s this all going to cost?
  14. Talking to a Lawyer

What is Chapter 7 Bankruptcy?

Everybody has bills.   Sometimes you may have to be late on a payment or miss one entirely.  It isn’t great for your credit score, but in the current condition of America’s economy, many people have to “rob Peter to pay Paul.”  If this is you, you probably don’t need to think Bankruptcy, not just yet.  But if you are drowning in debt:  credit cards, medical bills, payday loans, other unsecured debts, etc., and just can’t seem to keep your head above water every month, Chapter 7 bankruptcy may be an option for you.

Chapter 7 bankruptcy is often referred to as “Liquidation”. This may sound confusing, but think of it this way:  ever heard the term “cash flow”?  Cash can flow from person to person easily, just like water flows down a river.  In a Chapter 7 Bankruptcy, your bankruptcy trustee will turn certain types of your property into cash (or “liquidate”), and that cash will then flow to your creditors to pay off your debts.

In order to qualify for Chapter 7 bankruptcy, you must pass a means test.  Scroll down this page to find more information on what a means test is and how it works. 

To find out more about Chapter 7 Bankruptcy, whether you are eligible, and how filing Chapter 7 bankruptcy may help you be excused from your credit cards and other unsecured debts, we at The Wright Firm highly recommend you contact a local bankruptcy attorney.

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Timeline: How long is this going to take?

The bankruptcy begins when you (and your attorney) file for bankruptcy with the court. You are no longer in bankruptcy when you receive a discharge. In many Chapter 7 cases, all of the debtor’s property is exempt, so the trustee will have no assets to liquidate and distribute to creditors. Cases where there are no assets to distribute to creditors are closed fairly quickly, sometimes in as little as a few months. Even though you have received a discharge, however, you case with the Court will remain open until the judge enters and order closing the case.  A copy of the order closing your case will be sent to you by the Court.

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The Means Test

Before filing for Chapter 7 bankruptcy, you will have to qualify through a Chapter 7 means test. Sounds scary, but know this:  since the test became part of Bankruptcy law in 2005, more than 96% of potential Chapter 7 filers still qualify.  The other good news is even if you don’t qualify for a Chapter 7 filing, you may still qualify to file under Chapter 13. The Means Test has two steps:

Step 1: Median Income

Your monthly income is compared to the median income for a Texas family the same size as yours. “Median” is another way of saying “middle,” like the median in the middle of a highway.  If all the families in Texas that were the same size as you were lined up by how much money each family makes per month, the median monthly income would be what the family in the middle of the line makes.  If you make the same or less money than that family in the middle of the line, you qualify for Chapter 7 bankruptcy – no Step 2 for you. If make more than the family in the middle of the line, you have to move on to Step 2 of the test.

Step 2: Calculating disposable income

If your disposable income over the next five years is:

  • Less than $6,000 ($100/month) - You Pass
  • Greater than $6,000 but less than $10,000 -  You May Have Passed, (depending upon your allowed expenses)
  • Greater than $10,000 – Sorry!

This is an extreme simplification of the means test. To find out how the test applies to your particular case, we at The Wright Firm highly recommend you speak with a local bankruptcy attorney.

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Is filing bankruptcy right for you?

Every person’s situation is different.  The best way to figure out if Chapter 7 is right for you is to speak with a local bankruptcy attorney.

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We will be happy to help you assess your financial situation and discuss your legal rights and options.   Just for a quick reference, Chapter 7 may be an option for you if you:

  • Have no income or low income
  • Have little or no money left after paying your necessary living expenses each month
  • Rent or have little equity in your home
  • Have few assets (or no assets) outside your furniture, clothing and other necessities.

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Credit Counseling Before You File

Before you file for bankruptcy, you must receive a Credit Counseling Briefing from a certified credit counseling agency. This applies whether you are filing under Chapter 7 or 13. At your counseling briefing, you will learn about financial management, how to do a budget analysis, and discuss with your counselor alternatives to filing bankruptcy. This counseling is REQUIRED by federal law (with very few exceptions), and your case may be DISMISSED if you do not attend a counseling briefing. Your bankruptcy attorney can recommend a counseling provider for you.

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Do I have to disclose ALL of my debts when I file for Chapter 7?

YES!  Bankruptcy Fraud is a serious federal offense for which you may face prosecution.

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The Process of Filing:

Step 1 – Complete your credit counseling session

Step 2 – Provide all of the necessary information to your attorney,

Step 3 – Your attorney will review your situation and prepare a bankruptcy petition.

  • You will have to list personal information, including:
  • all of your income,
  • assets,
  • expenses
  • debts and
  • any applicable exemptions to which you're entitled

Step 4 – Your our attorney files the petition in local bankruptcy court

Step 5 – The Court will appoint a bankruptcy trustee to your case.

After filing bankruptcy, an "Automatic Stay" is entered in most cases to prevent creditors from taking any further action against you outside of bankruptcy court.

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The Automatic Stay - Get Protection from Your Creditors

When you file for bankruptcy, the first thing that happens is the “automatic stay.” This is like putting up a wall between you and your creditors so they cannot call you anymore.  The court or the bankruptcy trustee mails a notice to all the creditors you have listed to notify them that you have filed for bankruptcy. This is another very good reason to fully disclose all of your creditors and debts. Should a creditor continue to call you – tell them they must speak to your attorney.  Be sure to tell your bankruptcy attorney if you have any on-going lawsuits or wage garnishments, so that he or she may call these creditors immediately.

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Do Your Part to Get Your Bankruptcy Discharge

Do not attempt to conceal your property, destroy any financial records, violate any court order or make any last minute high-dollar charges on your credit cards before you file.  ALWAYS listen to the advice of your attorney!

Please note: you may only file for bankruptcy one in 8 years! If you have received a discharge in a Chapter 7 case previously, you only have the right to receive another Chapter 7 discharge if you new case is filed at least eight years after the first case was filed. However, even during the eight-year waiting period, you may still be able to obtain relief in a Chapter 13.

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Chapter 7 Bankruptcy Exemptions

Exemptions are determined by the state where you have been domiciled.  “Domicile” in this sense means the state where you lived.  The key time period is the 730 days (2 years) immediately before the date you file your petition. If you have lived in the same state for the last 2 years before filing, that will be your domicile for exemptions. If you have lived in more than one state in those 730 days (2 years), then your exemptions will be determined by the state where your domicile has been located for the 180 days (about 6 months) immediately before the 730 days (2 years) before you filed (or where you lived for the majority of the 6 months).  So if you haven’t lived in the same state for the last 2 years:

  • Look back 2 years before you filed
  • Look back 6 months further
  • What state did you live in the majority of those 6 months?
  • That’s your exemption state!

If you have not lived in Texas for the last two years you need to tell your attorney immediately. Both the Federal Government and the State of Texas have defined exempt assets. After examining your situation, you and your attorney will choose between the two options. Generally the options are:

Texas Exemptions:

  • Homestead, subject to purchase money, improvements, tax lien and consisting of:
    •   
    • Not more than ten urban acres; or
    • Not more than 100 rural acres (200 acres for a family).
    • Not more than $125,000.00 in equity that was acquired within 1215 days prior to the filing of bankruptcy
  • Personal Property:
    • Without limit
      • All current wages
      • RA's and most retirement plans.
      • Prescribed health aids
    • The following not to exceed $30,000.00 ($60,000.00 for a family)
      • Unpaid commission of $7,500.00 for a single person/$15,000.00 for a family.
      • Home furnishings.
      • Provisions for consumption.
      • Tools of the trade including boats and motor vehicles.
      • Clothing.
      • Jewelry up to $7,500.00 ($15,000.00 for a family).
      • Two firearms.
      • Athletic and Sporting equipment (including bicycles).
      • Motor vehicles, one for each licensed driver and person who must rely on a licensed driver for transportation.
      • Certain livestock.
      • Household pets.
      • Present value of any Life Insurance Policy.
    •  Unlimited insurance benefits and cash value.
    • Proceeds to be paid under compensation laws including unemployment, workers compensation and crime victim benefit.
    • Texas Tomorrow Fund.
    • Note: Personal property may not be converted from non-exempt to exempt in an effort to defraud creditors.

    • Federal Exemptions (per debtor)
      • $18,450 in value for real or personal property used as a residence.
      • Up to $2,950 in equity in any one motor vehicle.
      • Up to $475 in value in any particular item of household furnishings, or wearing apparel, up to a total of $9,850
      • Up to $1 ,225 in jewelry held for personal use
      • Up to $1,850 in tools of the trade
      • Any un-matured life insurance contract you own, except for a credit life insurance contract
      • The right to received certain support and disability payments
      • Any property not otherwise protected in an amount not to exceed $975 plus any unused amount of the $9,250 in (1) above

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Reaffirming Secured Debts

While Chapter 7 bankruptcy may help eliminate unsecured debts, secured debts are generally not separated from the assets that secure them. That means that if you want your car loan discharged, you'll have to give back the car.

However, if you want to keep your car (or another asset that serves as security for a debt) you may be able to negotiate a reaffirmation agreement with your creditors in Chapter 7 bankruptcy. By reaffirming a debt, you agree to continue making payments in exchange for the right to keep your property.

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The Final Step

Before getting your bankruptcy discharge, you must complete an approved Debtor Education Course: a personal financial management course required by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Taking a Debtor Education course after filing bankruptcy is a bit like taking Defensive Driving after getting a speeding ticket.  The purpose is to teach you how to avoid making the mistakes that got you in trouble, and how to do things better the next time around. Your bankruptcy attorney can refer you to an approved financial management course in your area.

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What will this all cost?

Your cost is divided into two categories. One, the filing fee is $299.00 and must be paid through your attorney to the bankruptcy court. Two, attorney fees vary with the complexity of your case.

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Talking to an Attorney

The decision to file for bankruptcy is never an easy one.  We at the Wright Firm highly recommend you seek the advice of a local bankruptcy attorney before you make the decision to file.  Your attorney will need you to be honest and candid, and he or she should do the same for you.  When you are ready to talk to an attorney, The Wright Firm is here for you.

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We’ll help you evaluate your options using the Federal legal protection of bankruptcy, as well as discuss with you any non-bankruptcy options, such as debt and credit counseling, that may fit your unique circumstances. More »

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