Bankruptcy Page
Make sure to watch "Bankruptcy Basics" videos located on the right side of the page.
Bankruptcy is that branch of the law governed by a federal law called the United States Bankruptcy Code. It is designed to be used by people and businesses who cannot meet their current financial obligations and who wish to obtain a fresh start. Over the last several years, the newest revision of the Bankruptcy Code has put this system on its ear, but, as always, the judges and attorneys who practice in this area have been able to get things to the point that the law is workable. The paperwork, though, is a killer.
The theory of bankruptcy is that the Trustee takes all of the assets, sells them, gives the money to the creditors, and the debtors go on and are told to sin no more. That is only a theory. In most cases, there are assets which are exempt from forced sale by the Trustee. These exempt assets cab be worth as much as $60,000.00 for a couple. These particular assets are from a list found in the Texas Property Code and include most household items, cars, pets, food, clothing and the like. Pensions and Social Security income are also exempt. Houses used to be exempt, irrespective of equity, but that has changed depending on the circumstances.
Just as there are assets which the Trustee may not take, there are debts which the debtor may not have discharged. These include any debt owed to a government, such as taxes or fines. Also included are student loans, alimony payments, child support, and any debt incurred as a result of a division of a marital estate. There are others which may be case specific.
There are several main “chapters” of the Bankruptcy Code which do different things.
Chapter 7 is for both businesses and individuals who wish to get a fresh start. It is commonly known as the liquidation Bankruptcy because the non-exempt assets are liquidated, and the money so generated, if any, is given to the creditors, and the debtor simply goes on down the pike. This chapter now has a requirement that you may not use this option if you have the means to try to pay back some of your creditors. Most of the individuals who would have been in Chapter 7 prior to the change in the law are still there. Unfortunately, it is a lot more work for the attorneys to keep them there and it is almost impossible for a civilian to actually handle his or her own case.
Chapter 9 is for municipalities and, as you can imagine, rarely used.
Chapter 11 is a restructuring of the debts, assets and ownership of businesses so that the business can continue as an entity. Individuals with large debts also use this chapter because there is no limitation on size. When the airlines go into bankruptcy, this is the chapter they use.
Chapter 12 is reserved for farmers and fishermen. Because of the quirks of the family farm, Congress fashioned a special set of rules to try to keep the family farmer alive during this process. Most farms would not qualify for Chapter 13, and Chapter 7 would force the loss of the land.
Chapter 13 is the “repayment” option. Under the new law, this is the chapter where you pay back your creditors using a plan adopted by the court and administered by the court-appointed Trustee. This process can take up to seven (7) years to complete and is designed to allow the debtor to clear some of the debt, while, at the same time, giving the creditors some of their money back.
There are limitations to this category dealing with the size of the debt and minimum income of the debtor. Only people can file under this chapter. Corporations must use either Chapter 7 or Chapter 11. The plan is devised to take all of the income, pay the normal living expenses, and give the rest to the creditors. Obviously, there can be some discussions about what are normal living expenses and what is income, but, at the end of the day, most people fall into the main categories developed through the years and are processed fairly easily.
Motion to Lift Stay - When a case is filed in bankruptcy court, there is an automatic stay (a prohibition) on the collection of any debts. This includes debts which are secured by collateral owned by the debtor. There is a saying in bankruptcy: “Blessed are the secured, for they shall be paid.” When people have a house or car which stands as collateral for the loan, they have to pay the loan if they want to keep the collateral, but they will receive extra time through the bankruptcy court to pay the past due amounts. There are different rules for each type of collateral, but you normally have to pay what is due, keep the property insured, safe and in good repair. If the debtor does not, then the creditor can go before the court and ask the court to “lift the stay” and allow the creditor to collect and sell the collateral. The attitude in bankruptcy court is rather straightforward: Do what you are supposed to do and you will be able to keep your assets; if you do not, you will lose your assets.
The United States Bankruptcy Courts for the Southern District of Texas. (More)
United States Bankruptcy Code: (More)
Filing for Bankruptcy without an Attorney: (More)
Bankruptcy basics from the Judges of the Southern District of Texas
- The Process: (More)
- The Discharge in Bankruptcy: (More)
- Chapter 7. Liquidation Under the Bankruptcy Code: (More)
- Chapter 13. Individual Debt Adjustment: (More)
- Chapter 11. Reorganization Under the Bankruptcy Code: (More)
- Chapter 12. Family Farmer Bankruptcy or Family Fisherman Bankruptcy: (More)
- Chapter 9. Municipality Bankruptcy: (More)
- Chapter 15. Ancillary and Other Cross-Border Cases: (More)
- SCRA. Servicemembers' Civil Relief Act: (More)
- SIPA. Securities Investor Protection Act: (More)
- Glossary - Terms You Need to Know: (More)
As a matter of federal law, we must make the following statement: “We are a Debt Relief Agency. We help people file for bankruptcy relief under the Bankruptcy Code.” We also represent creditors in bankruptcy court, but, strangely enough, we are not required to disclose that fact.
