The legal process of bankruptcy is estimated to have been around for hundreds of years, but it is perhaps used more today than ever before. Individuals are increasingly considering bankruptcy when they are facing situations such as a home foreclosure, job loss, mounting medical expenses, divorce, credit issues, or even those unexpected curveballs. Declaring bankruptcy may be necessary, but it is not something individuals should enter into lightly. It is highly advisable to seek legal counsel from a Houston individual bankruptcy attorney before declaring bankruptcy.
Bankruptcy 101
The act of filing bankruptcy typically means an individual, usually classified as the “debtor”, is telling a court of law that they require relief from debts owed to creditors such as people and businesses. In other words, the debtor is unable to pay their bills.
There are three primary types of individual bankruptcy in Texas:
1. Chapter 7
2. Chapter 13
3. Chapter 11
If you are an individual contemplating filing for bankruptcy, it can be in your best interest to first make an appointment for a consultation with a reputable Houston individual bankruptcy attorney. Many debtors tend to think that if they are already out of money, the expense of hiring an attorney would seem counterproductive. On the contrary, an experienced attorney can help a client better navigate long term outcomes and financial situations related to a declaration of bankruptcy before officially filing with the court.
Chapter 7 Individual Bankruptcy
Chapter 7 bankruptcy is declared by individuals dealing with overwhelming unsecured debt such as credit cards and medical bills and can take approximately six months or so to resolve. This type of filing usually includes a bankruptcy trustee selling a debtor’s nonexempt assets and then using those profits to in turn pay creditors.
It is worth noting that filing Chapter 7 does not necessarily solve all of individual’s debt issues. This only covers unsecured debts, so that generally excludes debt related to child support, car notes, mortgages, or overdue taxes.
A few additional things to keep in mind with Chapter 7 bankruptcy are:
You have to be eligible to declare it.
To be eligible, an individual’s level of disposable income must meet certain guidelines.
The state of secured debt must be current.
This means that any debts considered secured such as a car or home, must be current or the individual could potentially lose that property.
There is an education component.
Individuals filing Chapter 7 bankruptcy can expect to take and complete online courses regarding pertinent money management topics such as credit counseling and financial management.
Chapter 13 Individual Bankruptcy
Unlike Chapter 7, filing Chapter 13 bankruptcy may provide a debtor a little more breathing room as it typically consists of formulating a flexible repayment plan for creditors with hopefully less potential of property loss. It is typically utilized by individuals still receiving an income, but one that is insufficient to help them effectively pay off their debts.
There are a few key differences between Chapter 7 and 13 bankruptcy filings. In Chapter 13:
Repayment plans are expected and require approval
Debtors are asked to draft a repayment plan that must be approved by a bankruptcy trustee and creditors before a court can issue a confirmation order.
You have more time
Chapter 13 bankruptcy usually allows debtors five years to repay their debts via the established repayment plan to creditors.
It might save your nonexempt property and your home
Debtors can usually keep their nonexempt property if creditors are adequately reimbursed, and filing this way may also keep your home from being foreclosed on.
Falling behind on payments isn’t necessarily a deal breaker
With most repayment plans lasting up to five years, if a debtor falls behind on a payment there is generally still an opportunity to modify a confirmation order to account for and make up that deficiency.
However, much like the Chapter 7 bankruptcy plan, filing for Chapter 13 does require debtors to commit to completing several courses regarding credit counseling and financial solvency. These classes are intended to help individuals correct undesirable spending habits and be better prepared for the future.
Chapter 11 Individual Bankruptcy
Chapter 11 bankruptcy is often coined as debt reorganization. In general, Chapter 11 enables an individual to come up with a repayment plan for creditors that must then be approved or denied by their creditors.
While this filing can sound similar to Chapter 13, it is typically only a preferred option when filing for Chapter 13 bankruptcy is simply not feasible due to an individual’s astronomical levels of debt.
Although Chapter 11 can be helpful to those individuals who do not qualify to file bankruptcy in other ways, it tends to be far more complicated, with a number of specific procedures and requirements that must be met. For this reason, it is usually a last resort for debtors declaring bankruptcy.
How A Houston Attorney Can Help Navigate Individual Bankruptcy
Individuals considering bankruptcy frequently do so because their income is insufficient to help them make payments on or eliminate overwhelming debt. However, there is a distinct difference between knowing help is needed and understanding the best way to proceed. This is where a reputable Houston individual bankruptcy attorney can help.
Individuals wanting to declare bankruptcy can choose from Chapter 7, 13, and 11, but knowing which option will serve them best is not as straight forward. With each choice encompassing different timelines, guidelines, restrictions, property rules, and long-term outcomes, it is critical for debtors to work with a lawyer who is experienced with choosing the best scenario for a debtor’s current and future state of affairs.
If you or a loved one is thinking about filing for bankruptcy, consider making an appointment for a consultation today with one of the Houston individual bankruptcy attorneys at Harold “Hap” May, P.C. today.
