The Liquidation Bankruptcy
Dripping Springs Attorney R. Brian Daniel
When faced with mounting invoices and harassing phone calls from bill collectors, many people seek the protection of the bankruptcy laws to erase their debts and start over with a clean slate. A Chapter 7 bankruptcy can relieve you of most, if not all, of your unsecured consumer debts including credit card bills; however, it is important to understand that not all types of debt can be eliminated. Bankruptcies filed under Chapter 7 of the U.S. Bankruptcy Code are generally most suitable if you are in debt, but do not have significant income or assets. Changes in the bankruptcy law that occurred in 2005, however, have made filing for bankruptcy protection under Chapter 7 somewhat more restrictive. Therefore, you should seek the advice of an experienced Dripping Springs Bankruptcy Attorney if you are considering filing for bankruptcy protection under any chapter of the Bankruptcy Code.
Chapter 7 Bankruptcy Law
Chapter 7, commonly known as a “liquidation bankruptcy”, is one of the most frequently used forms of personal bankruptcy. Before filing for this, or any other chapter of bankruptcy protection, individuals must first seek debt management counseling from an organization approved by the U.S. Bankruptcy Court. In addition, it is important to understand that debtors filing under Chapter 7 may be forced to surrender certain assets to the Bankruptcy Trustee who then sells the assets and uses the proceeds to pay some of the debtor’s creditors.
Notwithstanding, many exemptions exist that permit a debtor to keep most, if not all, of their assets. By statute, each state, including Texas, determines which assets debtors may keep (exempt assets) and which must be given up (non-exempt assets). In Texas, a debtor may also choose to apply the Texas State Exemptions or, if they are more favorable to the debtor, a debtor may choose to apply the Federal Exemptions. The two are mutually exclusive, so you can’t mix and match, but with the assistance of an experienced Austin, Texas Bankruptcy Attorney, you can assess which of the sets of exemptions provides you with the most advantageous situation given your specific set of circumstances.
Once the exemptions have been chosen and all non-exempt assets have been surrendered or liquidated, if any, debts that are not secured by property or collateral (unsecured debts) are then available for a discharge. When debts are discharged, debtors are no longer liable for those debts and creditors are no longer permitted to pursue collection actions against the debtor for those debts. The debts are, for all intents and purposes, extinguished and you get a Fresh Start. A qualified and experienced Austin, Texas Bankruptcy Lawyer can help keep your valuable property, including your home or vehicle, from being taken from you as the result of your filing for bankruptcy protection.
Individuals, partnerships, and corporations are eligible for debt relief under Chapter 7. However, the new bankruptcy laws impose income limitations on Chapter 7 bankruptcies. Individuals whose overall debt is primarily consumer debt must now pass a “means test” to qualify for a Chapter 7 bankruptcy (it dictates whether you have the “means” to make payments toward your outstanding debts through the use of a Chapter 13 repayment plan, rather than permitting a straight Chapter 7 filing). This test is used to prevent individuals with income sufficient to repay their debts from filing for immediate debt relief under Chapter 7. The means test compares a debtor’s annual income (looking at the average income from your paystubs over the six months prior to your filing date) to the median income for households of the same size in the debtor’s state of residency. If their income is less than or equal to their state median income, debtors are eligible to file under Chapter 7. If they do not qualify for a Chapter 7 bankruptcy, they may be eligible for a repayment plan under Chapter 13 instead.
In Texas the annual maximum gross income thresholds for Chapter 7 are as follows:
Household size 1: $41,225
Household size 2: $55,895
Household size 3: $60,503
Household size 4: $67,296*
* Add $8,100 to the $67,296 figure for each person in excess of four in the Debtor’s family unit.
Next, it is important to understand that a Chapter 7 bankruptcy case can help you eliminate most credit card and other consumer debts; however some may remain. For example, a debtor cannot typically discharge debts for child support, spousal maintenance (alimony), mortgages, most student loans, court fines and criminal restitution, personal injury judgments resulting from drunk driving or fines assessed for driving under the influence of alcohol or drugs.
Contact an Experienced Dripping Springs Bankruptcy Lawyer
If you are considering bankruptcy due to unmanageable debt, you should talk to a qualified Austin, Texas Bankruptcy Attorney to find out which of your debts might be available for a discharge.
An experienced Austin, Texas Bankruptcy Attorney can also help you determine whether you are eligible to file for bankruptcy protection and, if so, which chapter best suits your specific set of circumstances. If you are considering bankruptcy protection, it is important to get solid legal advice before moving forward, so please reach out to The Daniel Law Firm. We take great pride in serving clients all over Central Texas. Let us discuss the best strategy for moving your Bankruptcy case forward in both a positive direction and timely manner. Contact an Austin, Texas Bankruptcy Attorney at The Daniel Law Firm today at (512) 615-3569.