DallasBankruptcy Lawyer Holly Guelich – Bankruptcy Explained

Bankruptcy Explained – BACKGROUND

The concept of bankruptcy is historical and biblical. Historically, debtors were physically punished. “Bankruptcy” is the interruption of that punishment. In Deuteronomy and Nehemiah **(see bottom of page), it is provided that debts shall be forgiven every 7 years.

Frequently Asked Questions About Bankruptcy

What is the difference between a Chapter 13 bankruptcy and a Chapter 7 bankruptcy?

A Chapter 7 bankruptcy is sometimes referred to as a “straight bankruptcy” or a “liquidation bankruptcy.” In a Chapter 7 bankruptcy, all non-exempt property is turned over to the appointed Chapter 7 trustee to be sold and the proceeds are distributed to the creditors. In general, a house (depending on the amount of equity and the length of time which it has been owned), a car for each licensed driver in the household, household furnishings, clothing, jewelry, tools used for work, retirement accounts and some cash items such as bank accounts and income tax refunds are exempt. There are often dollar value limitations in each category except for retirement accounts and some homesteads. Most people in Texas filing a Chapter 7 bankruptcy do not have any “non-exempt” assets. In other words, most people keep everything that they own and don’t have to sell anything if they file bankruptcy. If you have recently moved to Texas it is important that I know that information as that may affect your case.

In a Chapter 13 bankruptcy, the debtor (the person filing the bankruptcy) maintains possession of their property (both exempt property and non-exempt) and pays to the trustee their disposable income for a period of at least 36 months and up to 60 months. Disposable income is generally defined as the difference between gross income and reasonable and necessary living expenses. Of course, taxes and insurance are deducted from those numbers.  Such definition has been affected by the 2005 bankruptcy laws. A Chapter 13 bankruptcy is also referred to as a “reorganization” or “repayment” case. Many people mistakenly believe that they have to pay all of the people that they owe back in full in a chapter 13 and that is not so. You pay back what your budget shows that can afford using certain calculations.

After the successful completion of the bankruptcy (whether a Chapter 7 or a Chapter 13), most debts are “discharged.” which means the creditors cannot collect from you anymore, they “go away”.  Student loans, child support, alimony, judgments due to drunk driving, and some income and sales taxes are not dischargeable as well as credit card debt, determined after a trial, to have been obtained by fraud. Those debts will not be affected by the discharge order and will survive the bankruptcy. A discharge order is an order from the bankruptcy judge that states that the dischargeable debts are discharged(the debts go away). This does not mean that they are “erased” from your credit report, the report should show the debts as discharged in bankruptcy with no amount showed owing on the report.

What determines whether a Chapter 13 bankruptcy or a Chapter 7 bankruptcy is preferable

A Chapter 13 bankruptcy requires that you have disposable income.(money left over after you pay your normal bills like utilities, food, rent, car payments etc–not including credit card payments) If you do not have any disposable income, you may not be able to qualify for a Chapter 13 bankruptcy and a Chapter 7 bankruptcy may be your only option.

If you owe money to the IRS, or are behind on house payments, real estate taxes or car payments and you want to keep your property, a Chapter 13 bankruptcy may be preferable so you can spread out the past due payments over 3 to 5 years.

If you own valuable, non-exempt property which you wish to keep, a Chapter 13 bankruptcy may be preferable.

If you have filed a Chapter 7 bankruptcy for which you received a Chapter 7 discharge in the last 8 years, you will not be eligible to file another Chapter 7 so a Chapter 13 bankruptcy may be your only option if 4 years or more has passed.

All questions relating to your your individual situation will be fully discussed during our mutually agreed upon meeting at my office.

Will I lose any property if I file a Chapter 13 bankruptcy?

Under a Chapter 13 plan, your debts are paid from the money paid into your plan. However, you may choose to surrender property that is collateral for a debt rather than re-paying the debt.(for example house or cars that you no longer can afford)

Will my creditors be allowed to collect interest or finance charges under a Chapter 13 plan?

Your general unsecured creditors (except for student loans and some IRS tax debt) will not be allowed to collect interest, penalties, or finance charges that accrue during the period of time that the plan is in effect. The unsecured creditors will only be allowed to claim the debt that you owe them on the date of filing of the bankruptcy.

Penalty and interest on unsecured Tax claims like IRS stop when the case is filed if the return was timely filed, to allow for repayment in a reasonable manner.

Your secured creditors (those with mortgages and collateral) will be allowed to collect interest on the portion of their claim that is covered by the value of the property that has been pledged as collateral.

The Chapter 13 Trustee does receive the maximum of a 10% commission on all payments made in the chapter 13 to administer the case. This is not interest but a flat percentage based on how much the trustee pays to the creditors.

** Deuteronomy 15:2 This is how it is to be done: Every creditor shall cancel the loan he has made to his fellow Israelite. He shall not require payment from his fellow Israelite or brother, because the LORD’s time for canceling debts has been proclaimed.