One way to categorize creditors when filing for bankruptcy is as secured or unsecured. The distinction between them can be important for both your creditors and yourself:

• Secured creditors have a lien on your property that they can use as collateral if you are unable to repay your loan. Common examples include home loans, car loans, and tax liens;
• Unsecured creditors do not have a lien that they can claim on your property. Credit card debt, payday loans, and medical bills are often categorized as unsecured debts; and
• Some unsecured debts are priority debts that must be paid in full, regardless of bankruptcy protections. Child support, spousal support, student loans and some tax debts are common examples.

Secured creditors generally receive priority in being compensated during bankruptcy proceedings. How creditors are compensated depends on whether you are filing for Chapter 7 or Chapter 13 bankruptcy.

Secured Creditors in Chapter 7

Before you file for Chapter 7 bankruptcy, you should first determine whether you will qualify by using the means test. People often think of passing a test as a huge obstacle to achieving their goals. However, a bankruptcy means test is unlikely to prevent you from filing for Chapter 7 bankruptcy if you need the advantages that come with this form of bankruptcy. You may be at greater risk of not qualifying for Chapter 7 bankruptcy because you were not thorough enough in documenting your income and expenses. An experienced bankruptcy attorney will conduct the means test for you and tell you whether the results suggest that you will qualify for Chapter 7 bankruptcy.

Meaning of the Test

The means test was created to prevent people from using Chapter 7 bankruptcy when they have sufficient disposable income, based on certain allowable expenses, to make a meaningful payment on their unsecured debts. Chapter 7 bankruptcy is advantageous in some situations because:

Federal bankruptcy law includes waiting periods that determine how soon a person can file for bankruptcy again after the initial filing. The length of the waiting period depends on the type of bankruptcy that was previously filed and what type of bankruptcy is being sought:

• After filing for Chapter 7 bankruptcy, you are required to wait eight years before filing for Chapter 7 again, if you want a discharge in bankruptcy;
• You can immediately file for Chapter 13 bankruptcy again after your first Chapter 13 bankruptcy case is completed, but you must wait two years before being able to discharge your debt again;
• You must wait four years after filing for Chapter 7 bankruptcy to file for Chapter 13 bankruptcy; and
• You must wait six years after discharging your debt under Chapter 13 bankruptcy to file for Chapter 7 bankruptcy unless you repaid at least 70 percent of the claims.

While some situations allow you to immediately file for a second bankruptcy, you may need to ask the court to extend the automatic stay protections. You may want to take steps to mitigate your chances of needing a second bankruptcy. There are several ways you can increase your financial security after bankruptcy:

1. Adhering to a Budget: Closely examine your monthly income compared to your necessary expenses. You should live within the means of your budget and keep any borrowing to a minimum.
2. Cautious with Credit: If you need to pay for something with a credit card, keep the expense to a level that you can repay that month. That way, you can rebuild your credit score with less risk.
3. Creating Additional Income: A new job, second job or promotion within your current job can all increase your monthly income, which in turn will increase your financial flexibility.
4. Selling Assets: We all have stuff. You should explore how valuable your stuff would be if sold. The additional money could be used for a savings account or to pay off debts.
5. Building an Emergency Fund: Unexpected expenses can cause financial hardship. Find a portion of your monthly income than you can contribute towards an emergency fund. By having savings, you may not need to borrow money when unexpected expenses occur.

Second Bankruptcy

Facing overdue debts is stressful enough without harassing behavior by creditors and the debt collection agencies they employ. Both Texas and federal law protect consumers from debt collection harassment. Unfortunately, debt collectors still use aggressive practices that cross legal boundaries. Taking financial action, such as filing for bankruptcy, can stop contact from debt collectors. However, you can also hold creditors accountable for their harassment.

Illegal Behavior

Creditors and debt collection agencies use harassing and abusive methods because they know people are too intimidated to stand up for themselves. Debt collectors do not have the right to harass or defraud you. The Texas Debt Collection Act defines illegal practices by debt collectors as including:

The coming new year means another year of federal income taxes that are due. If you are unable to pay your taxes, the IRS can be a troublesome debt collector. The IRS can send you a levy notice when it believes you are neglecting or refusing to pay your taxes. You have 30 days to respond and contest the levy, otherwise the IRS can start seizing your property and garnishing your wages. Filing for bankruptcy can put a hold on the levy and give you additional means to repay your debt. In some instances, you may be able to discharge part of your tax debt. However, the IRS has guidelines for clearing debts by using chapter 7 or chapter 13 bankruptcy.

Chapter 7

Chapter 7 bankruptcy involves selling off non-exempt assets and using the money to repay creditors. The advantage when filing for Chapter 7 bankruptcy is the possibility of discharging your income tax debt. Your debt may be eligible for discharge if:

One of the most powerful tools in filing for Chapter 7 or Chapter 13 bankruptcy is the ability to discharge your debt. After you have completed the conditions of your bankruptcy, the court may clear you of your remaining debt obligations and prohibit your creditors from continuing collection efforts. Because this represents a loss to them, your creditors may search for reasons why you should still be liable for the remainder of your debt. Discharge is not guaranteed as part of bankruptcy. You must follow the correct procedures and make a good-faith effort to repay your debt.

Requirements

There are several steps needed to qualify for debt discharge, and missing any one of them may cause a court to deny your request. The requirements include:

People who file for bankruptcy have several exemptions at their disposal to protect their properties from seizure by creditors. Texas residents can use either the federal property exemptions or the Texas property exemptions, but not both. Many residents choose the Texas exemptions because they are considered more favorable. With Texas’ property exemptions, bankruptcy filers may be able to keep valuable assets, such as their homes and vehicles.

Homestead

Texas’ Homestead Exemption provides broad protection for the primary residence of a person filing for bankruptcy. A home of any value may qualify, as long as the property is:

I recently read an article on forbes.com about bankruptcy, and it has been niggling in the back of my mind ever since. The author is not a bankruptcy lawyer, but there he is on the Internet pontificating about the three most important things you need to know about filing for bankruptcy.

He noted that bankruptcy isn’t free, saying that this is a “surprise” to many people. I’m not sure why anyone would have an expectation that filing for bankruptcy would be free. People don’t go to the store and expect to get their groceries for the week for free. They don’t go to the hospital for surgery and expect the surgeon and the hospital to thank them for coming in and provide services for free.

The article goes on to say that most lawyers charge by the hour. While this is true for many lawyers, it is not necessarily the case for consumer bankruptcy lawyers. Most charge a flat fee, which is typically a small percentage of the debts that are discharged and the assets that are protected. Furthermore, unlike other areas of the law, there is oversight of the fees that bankruptcy lawyers charge, because those fees are disclosed as part of the bankruptcy filing (in two different places) and must comply with the local rules of the bankruptcy court.

Before a debtor can file for bankruptcy, they must complete a pre-bankruptcy credit counseling session with an approved provider. Sadly, most simply see this as a part of the process when, in fact, it is a prime opportunity. In fact, for some, the pre-bankruptcy counseling session could be exactly what is needed to avoid filing for bankruptcy. However, even when that is not the case, debtors stand to learn a lot about their financial future. Learn more about how to make the most out of your pre-bankruptcy credit counseling session, and discover how an experienced attorney can assist you with the bankruptcy process.

What Happens During Pre-Bankruptcy Credit Counseling?

Although pre-bankruptcy credit counseling sessions may vary slightly in their curriculum, all include an analysis of your current financial situation, a discussion on what alternatives may be available to you, and a personal budget plan. Debtors may be asked to complete these elements of the course over the phone, in person, or online. Once the debtor has completed the course, they should be issued a certificate of completion. (Note that debtors should not be charged an additional fee for their certificate of completion.)

Filing for bankruptcy may not be an easy decision, but it can give you a chance to start over – a clean slate if you will. What you do with that second chance is, of course, up to you. Make the most of it by learning how to repair your credit after bankruptcy, and learn how an experienced bankruptcy attorney can assist with the process.

Dispelling the Bankruptcy-Credit Myth

The first thing to understand about bankruptcy and your credit is that the impact may not be as drastic as you fear. In fact, a study from the Federal Reserve Bank of Philadelphia found that people’s credit scores typically plunged in the 18 months before bankruptcy but rose quickly once the process was complete. The reason for this is simple: while filing for bankruptcy does hit your credit, the repeated hits caused by late payments and new collection accounts can do more damage over time. Bankruptcy stops the collection process and gives you a new start.

The short answer…absolutely not!  

So what are those numbers, and what do they mean to a person who has filed for bankruptcy?

341 is actually a section in the Bankruptcy Code (the federal law that covers bankruptcy) and the shorthand term for the first meeting of creditors in a bankruptcy case. Don’t get fooled by the word first. In fact, don’t get fooled by the word creditors either. In a consumer bankruptcy case, there typically is just one meeting, and by and large, the creditors don’t attend these meetings, with the possible exception of a disgruntled former spouse.  

Before a debtor can file for bankruptcy, they must complete a certified credit counseling course. What is this required course, why do you need it, and how can you make it work to your advantage? The following information explains and provides some important details on how an attorney can assist you through the bankruptcy process.

What is Pre-Bankruptcy Credit Counseling?

Once you have decided that bankruptcy is the right option for you, you must then decide which type of bankruptcy you would like to file. In some cases, the decision is based on your circumstances. In others, it is a matter of personal preference. Learn more about the types of bankruptcy available to individuals and small businesses, including how to determine which one may be most appropriate for you, with help from the following information.

The Basics: Chapter 7 versus Chapter 13

At first glance, all forms of bankruptcy might appear the same. However, there are some distinct differences between Chapter 7 and Chapter 13. For example, Chapter 7 bankruptcy discharges most forms of secured debt, meaning the debtor is no longer responsible for them. Another major difference is how assets are retained during each bankruptcy process. For example, if a borrower is making payments on a vehicle, the creditor may still repossess the car if a Chapter 7 bankruptcy is filed. In Chapter 13, the debtor may be permitted to keep the vehicle if they continue to make the agreed upon payments.

Texas Foreclosures - The First Tuesday of Every Month

The foreclosure process in Texas happens quite rapidly, but the filing of a bankruptcy CAN STOP the foreclosure process.  The First Tuesday of each and every month, rain or shine and even on holidays, homes are sold on the county courthouse steps because homeowners stop paying their mortgage.

Many clients ask me "Will they really sell my house?"  Unfortunately, the answer is absolutely and you may be evicted from your home in a few weeks after that.