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Q & A

Q: What exactly is bankruptcy?

A: Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcy’s roots can even be traced to the Bible. (Deuteronomy 15:1-2 “Every seventh year you shall practice remission of debts. This shall be the nature of the remission: Every creditor shall remit the due that he claims from his neighbor; he shall not do his neighbor or kinsman.”)

Q: Should I send emails to my attorney?

A: The transmission of an email request for information does not create an attorney-client relationship. You should not send us via email any confidential information or facts relating to your legal problem or question. If you are NOT a client of Andrew Nichols, your email may not be privileged or confidential. If you ARE a client, remember that email may NOT be secure, and may be intercepted illegally.

Disclaimer: All materials provided on this website are for information purposes only. The materials do not constitute legal advice. Due to the complexity of bankruptcy and exemption laws, differing interpretations of statute and case law from various state and federal courts, you should obtain the services of a competent bankruptcy attorney before acting upon the materials contained on this website or filing a bankruptcy petition.

NOTE – Sending email to our office does not establish an attorney-client relationship. No attorney-client relationship is created by the information provided here or by any consultation with our law firm’s attorney or staff. An attorney-client relationship is ONLY created after: (A) the attorney agrees to accept your case; AND (B) you have entered into a SIGNED WRITTEN CONTRACT with our office; AND (C) you have paid all agreed retainer fees to our firm. An attorney-client relationship can only be established by mutual written consent with the attorney.

Q: What paperwork should I bring to the consultation?

A: In order to prepare the consumer bankruptcy papers, the client must bring the following documents:

  1. A list of all creditors, including addresses, account / loan numbers, and the amounts and description of each debt.
  2. For each secured debt, such as a car loan or home mortgage:
    1. Copy of the latest statement showing the balance due on the debt.
    2. Copy of the DMV registration or recorded trust deed foreach secured debt.
  3. Income tax returns for the last two years, including W-2, 1099, and K-1 information.
  4. Copies of all pay stubs or copies of bank statements for the last 6 months showing the amount and frequency of the client’s income.
  5. A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, housing, utilities, taxes, transportation, medicine, etc.
  6. If self-employed, copies of monthly profit-and-loss statements for the past six months.
  7. Copies of any lawsuits or judgments, regardless of whether the client is a plaintiff or defendant.
  8. Copies of any family trusts or prenuptial agreements.

Q: Will my bankruptcy appear on my credit reports?

A: Yes. Your bankruptcy can be listed in credit reports for a period of up to 10 years.

Q: After I file, can I obtain new credit?

A: Yes. The decision of whether to extend you credit belongs to each particular lender. While some potential creditors will reject your application for credit simply because you have a bankruptcy on your record, others will grant you credit because you have no other debts left and have the ability to pay a new loan. Often you can obtain credit while in chapter 13 Bankruptcy if Court and Trustee approval is obtained and certain rules are followed.

Q: How can I re-establish my credit rating after bankruptcy?

A: The best way to rebuild your good credit over time is by making payments every month without fail. A bankruptcy followed by a good payment record is much more desirable than a continued history of unpaid bills. Creditors also may be willing to work with you because you are prohibited by law from filing chapter 7 bankruptcy again for a significant period of time. Your bankruptcy can stay on your credit report for 10 years. It becomes less significant the farther in the past the bankruptcy is.

Q: How do I surrender items in bankruptcy?

A: When you file for bankruptcy relief, you must evaluate all your secured assets, if any, and determine which ones you can afford to keep. If you must return assets, you must return them through a procedure called “surrender.” Secured assets are items that the seller can repossess from you if your written agreement states the seller may take the items if you fall behind on your payments. Surrender can be voluntary. You can simply decide that you cannot afford to keep the assets and return them. However, if you try to keep the assets and the creditor or trustee determines that you cannot afford them, or that they are merely luxury items, you may be forced to give them up to your secured creditors. In general, it’s not advisable to surrender a secured asset before filing a bankruptcy case unless the value of the asset is less than the amount of the seller’s lien.

Deficiency Judgment – Surrendering a secured asset during a bankruptcy proceeding may help you avoid a deficiency judgment. This usually occurs when a secured creditor repossesses an asset, sells it for less than what’s owed, and then obtains a judgment against you for the balance (usually because you cannot pay the difference, or refuse to pay it). Although you are protected from a deficiency judgment if you surrender an asset through bankruptcy, surrender outside of a bankruptcy does not protect you from a deficiency judgment.

You Can Keep Assets – The bankruptcy code permits you to keep secured assets through reaffirmation of purchase agreements, or through redemption. If you are not in the financial position to reaffirm or redeem an asset, you may have no other option but to surrender the asset to the secured creditor. If you no longer have the asset, and still owe money to the secured creditor, you must still pay the secured creditor for the asset. Failure to pay may result in an adversary proceeding by the creditor against you for conversion, which would make the debt not dischargeable.

Q: Does my divorce decree protect me if my ex-spouse has filed for bankruptcy and she has listed me as a co-signer on a Schedule D?

A: If you are contractually bound with your ex-spouse on a debt, the creditor can require the entire payment of that debt from your share of the community property even though the divorce decree assigns the debt to your ex-spouse. Depending on the terms of your divorce decree, you may be able to have certain support obligations under it determined to be non-dischargeable by the bankruptcy court or in state court. If you find out that your ex-spouse has filed for bankruptcy, you should seek legal advice to find out your possible obligations.

Q: Does liquidation mean you lose everything?

A: When you file for bankruptcy relief under chapter 7 (liquidation), the bankruptcy trustee can take your assets and sell them to pay off your unsecured creditors. However, bankruptcy laws have exemption statutes that permit you to keep personal property, within reason. Exemptions essentially protect you from the enforcement of judgments, with the understanding that people need certain items in order to live.

Exemption Protocol – If you choose the second exemption scheme, under Texas bankruptcy laws, you can keep:

  • Your home, if not more than one acre in town or 100 acres out of town.
  • $30,000 worth of personal property, including one-, two-, three- or four-wheeled vehicle; two horses, mules or donkeys and a saddle, blanket and bridle for each; 12 head of cattle; 60 head of other livestock; 120 fowl; pets.
  • Athletic and sporting equipment, home furnishing, family heirlooms; food and clothing; jewelry (but not to exceed 25 percent of total exemptions); tools of your trade
  • Burial Plots
  • Health Aids
  • Unemployment, Disability, Veterans’, Workers’ Compensation, and Social Security Benefits
  • Alimony and Child Support
  • ERISUA Qualified Retirement Plan and Life Insurance Proceeds
  • Business Partnership Property
  • Farming or Ranching Vehicles and Implements

Q: What court should I file bankruptcy in?

A: Bankruptcy is a form of relief created by the U.S. Government, and therefore is federal law. Accordingly, all bankruptcy cases must be filed in the proper bankruptcy courts.

Federal Jurisdictions- Each state is divided into federal districts, which contain federal bankruptcy courts. In Texas, bankruptcy courts exist in the Northern District, Western District, Eastern District, and Southern District. There may be divisions within the districts as well. For example, the Southern District has a Houston Division and a Galveston Division.

Special Bankruptcy Courts – Bankruptcy cases are filed in the bankruptcy court of the federal district where the debtor resides. A bankruptcy petition cannot be filed in a state court, which has no jurisdiction over federal matters such as bankruptcy. For example, if you live in Houston, Texas, you cannot file your bankruptcy petition in the Harris County District Court. You must file your bankruptcy petition in the bankruptcy court of the Southern District of Texas, Houston Division.

Other Requirements – To file for bankruptcy in a particular district, the debtor must have resided there for at least six months or have had a place of business in that district for at least six months. The bankruptcy petition is filed with the clerk’s office of the appropriate bankruptcy court. A non-refundable filing fee is required, and the amount varies depending on the type of bankruptcy relief sought. Although the petition and accompanying documents are generally the same for each court, each bankruptcy court has its own set of rules regarding filing procedures and formats.

Q: Are bankruptcy filings public records? What must you reveal about your financial information if you file for bankruptcy relief? Is your privacy protected?

A: Bankruptcy is not without its consequences. When you file for bankruptcy relief, you are required to disclose just about everything about yourself. The information is not necessarily limited to financial information, and may contain some personal information that you may consider to be very private.

Required Information – On your bankruptcy petition, you must list:

  • Your Social Security number
  • Your current residence address, as well as your residence addresses over the past two years
  • The name and address of your current employer and of any employers over the last two years
  • All your monthly income and expenses
  • The account balances of all checking and savings accounts
  • The names and birth dates of any dependents
  • The amount of spousal or child support you owe or are paying monthly
  • Whether you are listed in a person’s will
  • All your assets, including real property, luxury items and antiques you own
  • What kind of car you drive or own
  • The name, account number, and debt regarding every creditor

Open to the Public – Bankruptcy filings are public records. Anyone can go to the bankruptcy clerk’s office where your case is filed and look up your information. Copies of your bankruptcy can also be obtained for a small fee.

Tell the Truth – All information in your bankruptcy paperwork must be provided under penalty of perjury. If you omit any significant information, you run the risk of having your bankruptcy dismissed. You further run the risk of being prosecuted for bankruptcy fraud if, for example, you do not disclose the fact that you sold your house 6 months before filing for bankruptcy.

Be Prepared – If you file for bankruptcy relief, you must be prepared to disclose many things you may consider to be private. However, this may be a relatively small price to pay if your financial situation is dire.

Q: Will I lose my house or other property if I file for bankruptcy?

A: Many of our clients worried about the possible loss of their home as they considered filing for bankruptcy. Though there have been a few situations where a debtor lost his/her home, keep in mind that bankruptcy is not designed to put you out on the street. You lose no property in chapter 13. In chapter 7, you select property you are eligible to keep from a list of permitted exemptions:

Equity in your Home – In chapter 7 bankruptcy, whether or not you will lose your house depends on the amount of equity you have in the property and the amount of any homestead exemption (which varies state-to-state) to which you are entitled. If the total amount of debt against your house is less than the market value, you may lose your house unless a homestead exemption entitles you to all or most of the equity. In Texas, this exemption allows you to keep your home regardless of the equity you have in it (with very few exceptions). If you are behind on your mortgage payments, you will almost certainly lose your house if you file a chapter 7 bankruptcy. Your mortgage lender will ask the bankruptcy court to lift the automatic stay to begin or resume foreclosure proceedings. In a chapter 13 bankruptcy, you will not lose your house if you immediately resume making the regular payments and repay your missed mortgage payments through your plan. If you are current on your mortgage payments, you will not lose your house if you file for chapter 13 bankruptcy, as long as you continue to make your mortgage payments.

Renting – If you are current on your rent payments and file for bankruptcy, it’s unlikely your landlord would receive bankruptcy notice. But if you are behind on your rent, there’s a good chance that your landlord will begin eviction proceedings.

Insurance – You usually are allowed to retain the cash value of your policies, Retirement plans. Pensions which qualify under the Employee Retirement Income Security Act (ERISA), and many other retirement benefits are fully protected in bankruptcy.

Personal Property – You’ll be able to keep most household goods, furniture, furnishings, clothing (other than furs), appliances, books and musical instruments.

Public Benefits – All public benefits, such as welfare, Social Security and unemployment insurance, are fully protected.

Tools used on your Job – You’ll probably be able to keep up to several thousand dollars’ worth of the tools used in your trade or profession.

Wages – In most states, you can protect at least 75% of earned but unpaid wages.

Q: What is a credit report?

A: Credit reports are compiled by credit bureaus – private companies that gather information about your credit history and sell it to banks, mortgage lenders, credit unions, credit card companies, department stores, insurance companies, landlords and even a few employers. Credit bureaus get most of their data from creditors. They also search court records for lawsuits, judgments, bankruptcy filings, and recorded liens (legal claims). To create a credit file for a given person, a credit bureau searches its computer files until it finds entries that match the name, Social Security number and any other available identifying information. Credit reports include non-credit data such as names you previously went by, past and present addresses, Social Security number, employment history, marriages and divorces. Credit data includes the names of your creditors, type and number of each account, when each account was opened, your payment history for the previous 24-36 months, your credit limit or the original amount of a loan, and your current balance. The report will show if an account has been turned over to a collection agency or is in dispute.

Q: How can I get a copy of my credit report?

A: There are three major credit bureaus Equifax, TransUnion and Experian. The federal Fair Credit Reporting Act (FCRA) entitles you to a copy of your credit report, and you can get one for free if:

  • You’ve been denied credit because of information in your credit report and you request a copy within 60 days of being denied credit
  • You’re unemployed and looking for work
  • You receive public assistance
  • You believe your file contains errors due to fraud

In addition, you can get one free copy a year if you live in Colorado, Georgia, Maryland, Massachusetts, New Jersey or Vermont.

The law says that if you don’t qualify for a free report, you should pay no more than $8.50 to obtain a report from Equifax (P.O. Box 740241, Atlanta, GA 30374, 800-685-1111, http://www.equifax.com/), Trans Union (P.O. Box 1000, Chester, PA 19022, 800-888-4213, http://www.tuc.com/) or Experian (P.O. Box 2104, Allen, TX 75013-2104, 888-397-3742, http://www.experian.com/).

Provide the following information:

  • Your Full Name (Including Generations Such As Jr., Sr., III)
  • Your Birth Date
  • Your Social Security Number
  • Your Spouse’s Name (If Applicable)
  • Your Telephone Number
  • Your Current Address & Addresses for the Previous Five Years.

Q: What are secured debts?

A: Secured creditors normally retain the right to seize their loan collateral, even after a discharge is granted. The debtor must decide whether to keep the asset. If a debtor returns the collateral, and if a discharge is granted, the debtor will have no further liability to the creditor. A debtor wishing to keep the asset, such as an automobile, may “reaffirm” the debt or redeem the property. A reaffirmation is an agreement between the debtor and the creditor where the debtor promises to pay all or a portion of the money owed. The reaffirmed debt will still be owed after the discharge. In return, the creditor promises as long as payments are made, the creditor will not repossess the automobile or other property. If the debtor defaults on the payments, the creditor may repossess and sell the collateral. Unfortunately, if the sale price is not enough to pay off the debt, the debtor will still owe a deficiency to the creditor.

Q: Will all my debts be discharged?

A: It depends. The following debts are non-dischargeable in both chapter 7 and chapter 13. If you file for chapter 7, these will remain when your case is over. If you file for chapter 13, these debts will have to be paid in full during your plan. If they are not, the balance will remain at the end of your case:

  • Child support and alimony
  • Debts for personal injury or death caused by your intoxicated driving
  • Student loans
  • Fines and penalties imposed for violating the law, such as traffic tickets, criminal restitution, and certain tax debts.

In addition, the following debts may be declared non-dischargeable by a bankruptcy judge in chapter 7 if the creditor challenges your request to discharge them. These debts may be discharged in chapter 13. You can include them in your plan, and at the end of your case, the balance may be eliminated:

  • Debts you incurred on the basis of fraud, such as lying on a credit application
  • Debts from willful or malicious injury to another person or another person’s property
  • Debts from embezzlement, larceny or breach of trust
  • Debts you owe under a divorce decree or settlement unless after bankruptcy you would still not be able to afford to pay them or the benefit you’d receive by the discharge outweighs any detriment to your ex-spouse (who would have to pay them if you discharge them in bankruptcy).

Q: What is the general process in consumer bankruptcy cases?

A: In a chapter 7 case we will file several forms with the bankruptcy court listing your income and expenses, assets, debts and property transactions. A court-appointed person, the trustee, is assigned to oversee your case. About a month after filing, we will accompany you to a “meeting of creditors” where the trustee reviews your forms and asks any questions. Despite the name, creditors rarely attend. If you have any nonexempt property, you must give it (or its value in cash) to the trustee. The meeting lasts only a few minutes. A couple of months later, you should receive a notice from the court that “all debts that qualified for discharge were discharged.”

In a chapter 13 we will prepare and file the same forms plus a proposed repayment plan, in which we describe how you intend to repay your debts over the next three, or in some cases five years. A trustee is assigned to oversee the case and we will attend the meeting of creditors together. Often one or two creditors attend this meeting, especially if they don’t like something in your plan. After meeting the creditors, you attend a hearing before a bankruptcy judge who either confirms or denies your plan. If your plan is confirmed, and you make all the payments called for under your plan, you often receive a discharge of any balance owed at the end of your case.

Q: Will filing for bankruptcy stop harassing phone calls from bill collectors?

A: When we help you file for either type of bankruptcy, we ensure that an “automatic stay” goes into effect and is enforced. The automatic stay prohibits virtually all creditors from taking any action to collect the debts you owe them unless the bankruptcy court lifts the stay and lets the creditor proceed with collections. Most importantly, once you have retained an attorney (regardless of filing), the creditor will be referred to your attorney, and then, by law, the creditors will cease their harassing calls.

Q: How does the automatic stay help in bankruptcy?

A: A benefit of filing for bankruptcy relief is that it may, although sometimes temporarily, stop a lawsuit. This is accomplished through what is called the automatic stay.

How it works – Once a bankruptcy petition is filed, the bankruptcy clerk mails notices to all the creditors listed. All creditors must cease contacting you. Until the stay ends, they cannot:

  • Call you
  • Send you bills
  • Threaten you
  • File a lawsuit
  • Continue with an ongoing lawsuit

Violations – Any further harassment by your creditors after they have received notice of your bankruptcy, including further action regarding a lawsuit they may have filed against you, is considered a violation of the automatic stay, and they can be fined for such conduct. However, such violations must be willful. Creditors who were not properly notified of the bankruptcy and continue their collection efforts may not be willful violators since they wouldn’t know you had filed.

Stays in Effect – The automatic stay remains in effect from the date your bankruptcy petition is filed to the date your bankruptcy case is closed, dismissed, or a creditor is granted relief from the stay by the court. Where real property is involved, the courts are more inclined to grant relief. For example, a landlord may be allowed to continue eviction proceedings against you for non-payment of rent. Or, your mortgage lender may be allowed to continue foreclosure if your home has little or no equity. Or your auto leasing company may be allowed to repossess your car if you are far behind in payments and the car still has a profitable resale value.

Motion for Relief – To request relief from the automatic stay, the creditor must file a motion with the bankruptcy, stating the reasons why the relief is necessary. Usually, these motions are heard by the court a few weeks after the motions are filed. Sometimes, as with eviction or foreclosure proceedings, the creditor will seek immediate relief.

Only Temporary – The automatic stay is a powerful weapon against further action by creditors. However, the automatic stay is temporary, and once your case is over, any creditors whose debts are non-dischargeable can resume their lawsuit, collection, or enforcement proceedings against you.

Q: Which options in bankruptcy are right for you?

A: If you are thinking about filing for bankruptcy relief, there are several options available, depending on your particular situation.

Chapter 7 – Individual Liquidation – Here, your assets are sold, and the proceeds of the sale are distributed among your various creditors. However, you are entitled by federal law to certain exemptions that allow you to keep some personal items such as household goods and necessities. However, many bankruptcy courts use the exemptions allowed in their states. Most people who file for chapter 7 relief don’t have too much in the way of non-exempt assets or secured assets that can be taken away by creditors. They usually end up keeping what few exempt possessions they have, and their debts are discharged.

Chapter 13 – Refinancing of Debt – Here, you most likely own assets that have some equity, such as a house, and you do not want to sell them to pay off your unsecured creditors. In this instance, you set up a negotiated plan to pay your creditors over a period of time. This allows you to retain assets and prevents harassment from creditors. However, you must have a steady income so you can realistically make the payments outlined in the plan. If for some reason you cannot meet your payment obligations, you may be forced to convert to a chapter 7 bankruptcy and your assets will be sold.

Chapter 11 – Partnership Refinancing of Debt – Here, you would typically be involved in a partnership and have assets of value that you prefer not to sell to satisfy your creditors. This is similar to chapter 13 bankruptcy for refinancing of debt with similar rules, but applies to non-individual debtors. If you cannot meet the obligations of the plan, the bankruptcy will be converted to a chapter 7 bankruptcy.

Evaluate All Options – You must make careful decisions and evaluate every option before deciding which type of bankruptcy relief to request. Filing for the wrong type of bankruptcy relief could lead to a dismissal of the case, or could lead to loss of assets. It is advisable to have a full financial and legal evaluation prior to filing a bankruptcy petition. Andrew Nichols would be happy to meet with you personally and go over the option that is best for you.

Q: What is Chapter 13?

A: Chapter 13 is a repayment plan for individuals with regular income, unsecured debt less than $269,250, and secured debt less than $807,750. The debtor keeps his or her property and makes regular payments to the Chapter 13 trustee out of future income to pay creditors over the life of the plan (3-5 years). Some debts must be repaid in full; others you pay only a percentage; others aren’t paid at all. Some debts you have to pay with interest; some are paid at the beginning of your plan and some at the end. The level of repayment depends on the debtor’s income and the composition of the debt. Certain debts that cannot be discharged in chapter 7 can be discharged in chapter 13. Chapter 13 also provides a mechanism for individuals to prevent foreclosures and repossessions, while catching up on their secured debts.

Q: What is Chapter 12?

A: Chapter 12 is a simplified reorganization for family farmers or family fisherman, modeled after chapter 13, where the debtor retains his property and pays creditors out of future income.

Q: What is Chapter 11?

A: Chapter 11 is a reorganization proceeding, typically for corporations or partnerships. Individuals, especially those whose debts exceed the limits of chapter 13, may file chapter 11. In chapter 11, the debtor usually remains in possession of his assets and continues to operate any business. The debtor proposes a plan of reorganization which, upon acceptance by a majority of the creditors, is confirmed by the court and binds both the debtor and the creditors to its terms of repayment. Plans can call for repayment out of future profits, sales of some or all of the assets, or a merger or recapitalization.

Q: What is Chapter 7?

A: Chapter 7 is the most common form of liquidation bankruptcy. It is a “fresh start” proceeding in which a consumer or business asks the bankruptcy court to wipe out (discharge) the debts owed. Certain debts cannot be discharged. In exchange for the discharge of debts, the business’s assets or the consumer’s nonexempt property is sold (or “liquidated”), and the proceeds are used to pay off creditors. Chapter 7 is available to individuals, married couples, corporations and partnerships. Individual debtors typically receive their discharge within 4-6 months of filing the case. Any wages the debtor earns after the case is begun are the debtor’s, beyond the reach of creditors who had claims on the date of filing.

Q: What is the Bankruptcy Code?

A: The Bankruptcy Code refers to Title 11 of the United States Code. (11 U.S.C. 101-1330) Federal Law governs bankruptcy.

Q: Are there different kinds of bankruptcy?

A: Yes. Bankruptcies can generally be described as “liquidation” or “reorganization.” There are several types of bankruptcy proceedings. Attorney Andrew Nichols will evaluate your particular case and recommend the best option for you.