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Which Assets Are Exempt in a Chapter 7 Texas Bankruptcy Case?
One of the primary reasons why many individuals are hesitant to file for bankruptcy is that they have heard that benefitting from the bankruptcy process will result in the loss of all of their personal property. This myth is likely grounded in the fact that Chapter 7 bankruptcy is referred to as “liquidation” bankruptcy.
It is important to understand that this nickname is misleading when it comes to personal bankruptcy. Companies that file for business bankruptcy must generally liquidate their assets in order to benefit from the protection afforded by the court. However, very few individuals who file for personal bankruptcy under Chapter 7 of the U.S. Bankruptcy Code lose any of their personal property as a result of the process. Instead, their property is generally protected from sale by the trustee assigned to their case via state or federal exemptions.
Exemptions: The Basics
Exemptions insulate specific property from the risk of being sold by the trustee assigned to one’s bankruptcy case. Both the state and federal schemes offer broad exemptions that cover virtually all non-luxury property that most low-income Chapter 7 filers tend to own. As a result, it has been widely reported that approximately 95% of all Chapter 7 filers do not have any of their property sold as part of the bankruptcy process.
What Exactly Is Bankruptcy?
If you are struggling with overwhelming debt, you may have been encouraged to start researching what filing for bankruptcy entails. Yet, it does not make much sense to begin researching the ins and outs of the bankruptcy process until you have a strong sense of exactly what bankruptcy is and whether this opportunity may benefit your situation uniquely.
Bankruptcy Is a Form of Debt Relief
The two primary forms of personal bankruptcy that are widely available to adults living throughout the U.S. are Chapter 7 bankruptcy and Chapter 13 bankruptcy. At the end of each successful bankruptcy case – regardless of the chapter type involved – a filer’s qualifying unsecured debts will be discharged by the court.
When a discharge is entered for a specific debt, like a credit card balance or a medical bills account, the filer is absolved of responsibility for that debt. As a result, no creditor can ever seek repayment for it again. It is this absolute form of debt relief that makes navigating the complexities of the bankruptcy process worth many filers’ time and energy.
Signs That It Is Time to Start Thinking About Filing for Bankruptcy
If you are struggling to make consistent payments on your debt-related financial obligations, you may or may not be in a position to benefit significantly from filing for bankruptcy. Certain bankruptcy alternatives are preferable for debtors who are facing unique circumstances, such as struggling to repay a single account. But, generally speaking, if you are unable to consistently repay multiple accounts, your wages are being garnished, you are risking repossession or foreclosure, or you simply cannot sleep at night due to debt-related stress, it may be time to start thinking about filing for bankruptcy.
There are numerous reasons why your financial situation may benefit significantly from the bankruptcy process. Overwhelming debt can lead to relationship strain, poor work performance, and a host of other challenges that color virtually every aspect of someone’s life. If your debt has become the most urgent aspect of your finances, chances are good that you could benefit from filing for bankruptcy.
If You Qualify for Chapter 7 Relief, There Are Still Reasons to Consider Chapter 13 Instead
The two primary forms of personal bankruptcy that are widely available across the U.S. are Chapter 7 and Chapter 13 bankruptcy. Regardless of which type you are thinking about filing, you will benefit from a discharge of your qualifying debts at the end of a successful bankruptcy process. You will also benefit from the protection afforded by the automatic stay in either scenario.
Yet, there are distinctions between these two forms of bankruptcy that every potential filer should be aware of. You may have heard that if you qualify for Chapter 7 bankruptcy you should embrace this opportunity because it allows for a quick discharge of debts without a repayment plan. However, there are some reasons why even low-wage earners who are eligible for Chapter 7 may want to file for Chapter 13 bankruptcy instead.
Why Consider Chapter 13 Bankruptcy?
There are two primary reasons why a filer who is eligible for a Chapter 7 discharge may want to consider Chapter 13 relief as a superior alternative.
Bankruptcy: Credit Counseling and Education Course Requirements
If you choose to file for bankruptcy, an attorney can complete most of the “heavy lifting” legal tasks associated with this process on your behalf. However, there are a few items on any bankruptcy to-do list that can only be completed by individual filers.
For example, you will be required to complete both a pre-bankruptcy credit counseling course and a pre-discharge debtor education course as elements of your bankruptcy filing. While an attorney can advise you regarding when you should complete each mandatory course, how to sign up for each course, and what you may want to pay particular attention to while participating, you will ultimately be responsible for accomplishing these steps in the bankruptcy process.
Pre-Bankruptcy Credit Counseling
It is easy to think about a bankruptcy case truly beginning when someone files their initial bankruptcy paperwork with the court. After all, that is when the protection of the automatic stay kicks in and the court begins considering the merits of a filer’s petition.
Filing for Bankruptcy to Address Medical Debt
The federal Consumer Finance Protection Bureau (CFPB) recently released alarming statistics related to the amount of medical debt that Americans are struggling to repay. In all, adults in the U.S. owed a minimum of $88 billion in medical debt as of June 2021.
The agency clarified that the actual medical debt burden plaguing American families is likely much higher, as this statistic was gleaned from analysis of consumer credit records and not all medical debt is reported to credit agencies.
If your struggle to repay medical debt is compromising your ability to repay other debts and to make ends meet, you are not alone. Thankfully, there are some debt relief opportunities available to you at this time. While filing for bankruptcy is not the only way to manage burdensome medical debt, it is worth noting that this is the primary financial obligation cited by adults in the U.S. as the reason why they have chosen to file for bankruptcy.
When Homeowners File for Bankruptcy
One of the primary lessons that Americans learned from the 2008 recession is that even hardworking people can fall on hard times no matter how financially responsible they are. As a result of this reality, you and your family may be facing a genuine risk of losing your home due to the foreclosure process. As a result, you may be thinking about filing for bankruptcy.
Depending on the details of your unique financial situation, filing for bankruptcy could help you to save your home, catch up on overdue payments, and restructure your debt to make your repayment obligations more manageable. With that said, filing for bankruptcy is not the best option for everyone, so you will want to carefully weigh your options before determining the best way forward.
Taking Advantage of the Automatic Stay
If you choose to file for bankruptcy, you will benefit from the protections afforded by the automatic stay as soon as the court receives your paperwork. The automatic stay halts most collection actions and keeps creditors from harassing you for nonpayment until your case is either resolved in your favor or dismissed.
How Much Debt Do I Need to Qualify for Bankruptcy?
If you are struggling with debt, a loved one or trusted colleague may have suggested that you look into filing for bankruptcy. Due to your financial challenges, you may have already tried to apply for a loan to bridge the gap between your current circumstances and a brighter financial future. After being denied, next, you may have tried to take out another credit card. After having a request for financing denied again, you may – very understandably – be wondering how exactly a person may qualify for bankruptcy.
It may settle some of your fears to know that there is no minimum debt limit required for bankruptcy filers. Instead, you will primarily need to concern yourself with whether you have a substantial enough debt burden to justify filing for this form of debt relief.
Bankruptcy Eligibility Requirements
You will need to meet specific eligibility requirements in order to file for bankruptcy. The court is mostly concerned with your income situation. If you are a low-wage earner, you will likely qualify for Chapter 7 bankruptcy relief. If you earn enough income consistently to make manageable debt payments, you will likely qualify for Chapter 13 bankruptcy relief.
Should I Settle My Debt or File for Bankruptcy?
Each year, thousands of Americans file for bankruptcy. Given how beneficial bankruptcy can be under certain circumstances, it is not difficult to understand why so many people choose to take advantage of this opportunity.
However, filing for bankruptcy is not the only debt relief option available for those who are struggling to consistently meet their financial obligations, nor is bankruptcy the best option for certain situations. As a result, it is important for debtors who are struggling to carefully review various debt management opportunities before determining which one(s) make the most sense for them.
For example, you may have heard about the potential benefits of debt settlement. Depending on your unique circumstances, settling your debt may or may not be a better choice than filing for bankruptcy.
Debt Settlement
The debt settlement process can be helpful if you can pay a large fraction of your balance at once in exchange for relief of the remainder. For example, if you are past due on a medical account that has a balance of $5,000, the provider’s billing office may allow you to pay $3,500 at once in exchange for closing your account.
Is Chapter 7 Bankruptcy or Chapter 13 Bankruptcy a Better Option?
If you have decided that filing for bankruptcy will help you to get your finances back on track, it is time to decide which kind of bankruptcy relief you will be requesting. In most areas of the country, individuals and married couples filing jointly have two primary options: Chapter 7 and Chapter 13 bankruptcy. The matter of which one is a better option depends upon a filer’s unique priorities, needs, and financial situation.
Chapter 7 Bankruptcy
If you are eligible to file for Chapter 7 bankruptcy, you are not facing an immediate risk of foreclosure, and a significant fraction of your debt is eligible for discharge, this is likely to be the best option for your circumstances.
At the conclusion of a successful Chapter 7 bankruptcy case, a filer’s eligible unsecured debts—including credit card bills and overdue medical accounts—are discharged. This means that the debt is wiped out and affected creditors can no longer demand repayment.
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