DWI record being expunged and sealed to get a real job. This image was adapted from, “Golden Lady Justice, Bruges, Belgium” and is copyright 
        (c) 2008 Emmanuel Huybrechts, flickr name Manu_H and made available under a Attribution 2.0 Generic (CC BY 2.0) license

Banckruptcy F.A.Q.


  Frequently Asked Questions about Bankruptcy

 

Q. When I file bankruptcy, can I just schedule the creditors that I want to go bankrupt on?

A. No, you may not. Texas is a community property state, therefore, all of your spouse's creditors must also be scheduled if you file a bankruptcy petition solely for yourself. Of course, if you and your spouse file a joint petition, all of your combined creditors must be scheduled.

Q. Are student loans dischargeable in bankruptcy?

A. Government backed student loans (which seem to be the majority of all student loans) are not dischargeable in any type of bankruptcy unless it can be shown that excepting them from discharge would impose an undue hardship on the debtor or his or her dependents.

This can be determined, after you file bankruptcy, by means of a law suit brought in the bankruptcy court.

You would have to show the court, that based on your present and prospective income, you could not possibly pay back the school loan, at least without extreme sacrifice to you and your family.

Q. I am in arrears with mortgage payments on my residence; can I file some type of bankruptcy that would prevent a foreclosure?

A. Yes, if you qualify to file a Chapter 13 bankruptcy and your income is sufficient to fund a Plan that provides for full payment of your mortgage arrearages within a reasonable time which is five years in the Western District of Texas, San Antonio Division.

Payments on the arrearages are made through the Chapter 13 plan through the Chapter 13 Trustee's office.

You would also have to make your regular monthly mortgage payments directly to the mortgage company.

Q. I am not behind with mortgage payments on my home but I have substantial equity in it; would my home be sold if I file bankruptcy?

A. The home would only be sold in a Chapter 7 bankruptcy case by the trustee if the equity is in an amount greater than the exemption.

In Texas, debtors may choose between the State of Texas Exemptions or the federal bankruptcy exemptions; but the two cannot be mixed.

Even if the equity is greater than the exemption, the trustee might not sell the residence if the amount coming into the bankruptcy estate is of too little value to administer.

In a Chapter 13, the debtor may voluntarily sell the home after obtaining court approval.

Q. Can my bankruptcy discharge me from federal income tax liability?

A. A discharge under a Chapter 13 bankruptcy, following the successful completion of plan payments, will relieve the debtor from all income tax liability and related penalties.

However unsecured 'priority' income tax must be paid at least 100% under the Chapter 13 plan.

Priority income tax includes (but is not limited to) income tax for which a return was due subsequent to three years before the filing of the bankruptcy.

Non-priority unsecured income tax would be paid under the plan on a par with other general unsecured debt (such as on credit cards).

Unsecured tax penalties may be paid on such basis or nothing under the plan.

A discharge under Chapter 7 would not relieve you from liability for priority income tax and certain non-priority income tax such as for tax years for which a return has not been filed or was filed within 2 years prior to the filing of the bankruptcy.

Penalties on these taxes are also non-dischargeable unless imposed for a tax year ending prior to 3 years before the filing of the bankruptcy.

The remaining income tax/penalty liability is dischargeable under a Chapter 7 but nonetheless would be collectible (except possibly a penalty portion) to the extent secured at the time the bankruptcy was filed.

If any income tax and penalty is secured by a valid perfected tax lien, such lien (with certain exceptions) would remain following a Chapter 7 discharge but would be gone following successful completion of plan payments and a discharge under a Chapter 13.

In a Chapter 13, such lien would have to be paid in full, with interest, to the extent of the security.

Q. What debts are not dischargeable in bankruptcy?

A. In a Chapter 7 case, most debts are generally dischargeable. The most common type of debt that is not dischargeable is that incurred by the debtor by certain fraudulent means.

That is, for example, where a debtor charges amounts to a credit card prior to bankruptcy and without an intent to repay the charges.

Such lack of intent to pay may be evidenced by the debtor's filing the bankruptcy within a short time following the incidence of such charges.

Another example of a debt made non-dischargeable by fraud is that incurred by a debtor on a credit card obtained by application that sets forth the debtor's income in an amount that is much greater than it really is.

If the credit card company can prove it would not have issued the card had it known the debtor's true income, the charges run up on the card would be determined to be non-dischargeable.

In these fraudulent instances the relevant debt, however, is dischargeable unless the creditor timely files a complaint with the bankruptcy court and proves the required elements of the fraud.

Other non-dischargeable debts in a Chapter 7 case that are dischargeable unless the elements are proven pursuant to a timely complaint are: willful and malicious injury (e.g. when a debtor refuses to give back a leased automobile to the owner after defaulting on the payments and demand for its return, injuries arising from a battery committed by the debtor) and certain types of fiduciary fraud.

The above non-dischargeable debts are always, however, dischargeable in a Chapter 13 (although the Court may dismiss a Chapter 13 for bad faith if a major fraud is being perpetrated by the debtor).

Of course in a Chapter 13 proceeding, unsecured creditors may receive a distribution from the trustee.

In addition there are a host of debts that are not dischargeable in a Chapter 7 without the necessity of the creditor filing a complaint.

These include alimony and child support, student loans in most instances and injuries resulting from driving under the influence of alcohol or drugs - all of which are likewise not dischargeable in a Chapter 13, and certain income tax.

The above list of non-dischargeable debts and illustrations are not exhaustive.

NOTE: Discharge has a special meaning in the bankruptcy context. A discharge under bankruptcy relieves the debtor from all personal liability as to dischargeable debts.

But take important NOTICE that a creditor with a security interest on the date of the filing of the bankruptcy petition securing payment of a debt can still, after the bankruptcy case closes, pursue enforcement of the balance of the debt to the extent only of foreclosing on the security in accordance with state law.

In a Chapter 13 it should be NOTED that certain secured debt may be paid to the extent of the value of the security; after discharge following plan completion the secured claim is considered paid in full.

Q. What is the process after the petition is filed and how much time does the bankruptcy process take?

A. In a Chapter 7 case, the First Meeting of Creditors takes place about five to six weeks after the petition is filed.

If all goes well and there are no contests or adversary actions filed, the discharge takes effect about five to six months from the date the petition is filed.

In a Chapter 13 the discharge takes place after the Plan is completed, which is generally between 3 to 5 years after the filing of the petition.

In any event after a bankruptcy is filed and prior to the discharge, the automatic stay is in effect preventing most creditor activity.

Q. What happens to my automobile or pickup truck lease or loan after I file bankruptcy?

A. In a Chapter 7 case an automobile lease will most likely be 'rejected' by the trustee. Under the terms of the lease the leasing company might be able to terminate the lease because of your filing bankruptcy whether or not you were then in default and such a clause would be effective as to you.

In such case the leasing company could pick up the motor vehicle when the bankruptcy case closed or sooner under certain instances. If the payments to the leasing company are current on the petition date, the leasing company might do nothing and you could keep the motor vehicle.

If you should default on the lease after your bankruptcy closes the leasing company might repossess the car but your liability would (if there is no reaffirmation agreement) be limited to the reasonable rental value subsequent to the filing of the bankruptcy.

In a Chapter 13 you could 'reject' the lease under the Plan, immediately return the car to the leasing company which would then have a claim for breach of contract to be paid under the plan (but you would also have administrative reasonable rent liability for the period of time you held onto car after the bankruptcy was filed).

You could assume the lease under the Plan which would have to provide for your maintaining the regular lease payments. Any pre-bankruptcy filing default would then have to be promptly cured.

As to a secured automobile loan in a Chapter 7, if you were not in default and the trustee did not wish to sell your auto (which he would not do if there is no equity greater than your exemption) you could keep the motor vehicle which would however remain as collateral for the loan.

However in such instance any personal liability on this loan would be eliminated by your bankruptcy discharge (unless the loan is reaffirmed).

This means that if you failed at some future point to make payments on the motor vehicle, other than for moneys generated by the lender's sale of the motor vehicle, the lender would have no recourse against you.

Such a discharge would have the same effect if you had been in default at the time you filed the bankruptcy.

Of course if you were then in default the lender would be entitled to possession of the car and could take possession of it after the case closes or sooner if relief from the automatic stay is obtained.

Whether or not you are in default at such time the lender may require you to file a reaffirmation agreement as a condition to maintaining possession of the auto; such an agreement would keep the personal liability intact.

The legitimacy of this if you are then in default is, of course, totally proper, but, if you are not, it is subject to argument.

In a Chapter 13 proceeding the loan on the motor vehicle would be paid pursuant to the Chapter 13 Plan.

Q. I am operating a business and having a problem paying the bills, what are my options?

A. If the business is owned by you or with your spouse and not indirectly by way of a partnership, corporation or LLC, you may be able to reorganize under Chapter 11 of the Bankruptcy Code or even possibly under Chapter 13 of the Bankruptcy Code.

If you just want to get out of the business altogether you might be best in a Chapter 7 liquidation. A Chapter 11 is expensive and there are substantial requirements imposed by the Court and U.S. Trustee's office in order to keep that kind of a Case going.

A Chapter 13 proceeding, on the other hand, is a quite a bit simpler and much less expensive and has other benefits over a Chapter 11 especially with respect to taxes you may owe the government (Federal and State) and other debts (including those incurred by way of misrepresentation) that are not dischargeable in a Chapter 11 or Chapter 7 but are in a Chapter 13 where full payment thereon may not be required.

Chapter 11 and 13 contemplate the confirmation of a Plan by which creditors are paid something while your business continues in operation. As long as you abide by the appropriate rules you can continue your business operation prior and subsequent to Plan confirmation.

If the business is owned by way of a partnership, corporation or LLC, Chapters 7 and 11 are available but Chapter 13 is not. It becomes a question of liquidation vs. reorganization.

However a Chapter 7 proceeding will not result in the corporation receiving a discharge but will result in an orderly liquidation of assets and hopefully payment of any trust fund taxes (as priority claims) relieving corporate officer/major shareholders from liability for '100% penalty assessments' as imposed on them for payment of such taxes.

Q. I/ my company/ partnership lease premises where I/ the company/ partnership conducts business. The rent is several months in arrears. There is other business debt which would take a great deal of time to pay off. Will bankruptcy allow the lease to stay intact?

A. Despite your predicament with the rent you may still be able to successfully reorganize and maintain the existing tenancy under a Chapter 11 or 13 if the business is owned by an individual, or Chapter 11 if the business is owned by a corporation or partnership (where you may be a shareholder or partner respectively).

To keep the lease intact the individual or entity filing the Chapter 11 or 13 must pay the rent as it becomes due after the filing of the case and must assume the lease which necessitates the curing of any pre-bankruptcy default thereunder within a prompt period (i.e. about three to six months).

Sometimes however the lease has been terminated (because of the tenant's default) prior to the filing of the bankruptcy in which case it cannot be assumed unless, possibly and arguably, under non-bankruptcy law (i.e. state law) there is some anti-forfeiture law that is applicable and can be utilized. Lease defaults, it should be noted, are, in many instances, a stumbling block to successful reorganization.

Rent is, in a sense, the most important obligation that needs to be paid.

Q. What do I need to bring with me to the consultation with the attorney?

A. We usually conduct the initial interview over the telephone to determine whether bankruptcy would be in the client's best interest. If so, we invite the client in for an office consultation. For the purpose of the in-office interview, please gather and bring with you the following:

  • A recent statement or bill from every creditor. [A creditor is everyone to whom you owe money; this includes, but is not limited to, credit card companies, mortgage company, automobile and truck finance companies, the Internal Revenue Service, medical providers, education loan companies, school and county taxing authorities.

  • Your last two years' federal income tax returns.

  • The most recent month's wage statements from your employer. If you are self-employed, you will need to provide evidence of your typical gross income and business operating expenses.

  • Checking account bank statements for the most recent three to six months. If you are self-employed, monthly operating statements.

  • Deeds to real estate if you own or are purchasing real property other than your home in the city.

  • Documentation to any other kind of financial obligation that you have.