Bankruptcy FAQ

Q: What is bankruptcy?

A: Bankruptcy provides debtors (individuals or businesses) who are unable to pay their debts a way to reorganize the debt in a way they can afford or discharge the debt with little or no repayment.

Q: Should I file Chapter 7 or Chapter 13 bankruptcy?

A: It depends on what you are trying to accomplish and eligibility to file. If you are current on the payments to creditors with loans secured by property you want to keep, and your goal is to discharge debt, then Chapter 7 is most likely your best choice.  However, if you are behind on payments to secured creditors and at risk of losing your property, filing Chapter 13 bankruptcy will protect your property from seizure and allow you to cure the missed payments.

Q: What is a secured debt?  What is an unsecured debt?

A: A secured debt is a claim that is attached to property by a lien.  If the debtor defaults on the debt the creditor can seize the property to pay off the debt.  Examples of secured debts include mortgages and car loans.  Unsecured debts are claims that are not attached to property.  If the debtor defaults the creditor is limited to trying to collect for the debtor.

Q: Who can bankruptcy?

A: Any person or business that is indebted can file bankruptcy.  This general rule is subject to eligibility requirements.

Q: How much debt must I have before I can file bankruptcy?

A: There is no rule that says that you have to have a minimum amount of debt or be insolvent in order to file bankruptcy.  However, there are costs associated with filing bankruptcy.  You should weigh the cost of bankruptcy against the cost of repaying the debt.  If you have little debt then bankruptcy probably won’t be in your best interest.  If you have more debt that you can repay in a reasonable amount of time, then bankruptcy should be considered.

Q: I’m married.  What happens if I file bankruptcy but my spouse doesn’t?

A: Only the spouse who files bankruptcy will receive a discharge.  The spouse who did not file bankruptcy will still be liable for the debt.

Q: Are all of my debts discharged in bankruptcy?

A: There are several types of debts that cannot be discharged.  The most common types of nondischargeable debts are student loans, child support, income tax, and criminal fines.

Q: Will I lose my property when I file bankruptcy?

A: Exemptions are laws that allow you to keep property when you file bankruptcy.  Each state has a separate set of exemptions.  In addition, there are federal exemptions described in section 522 of The Bankruptcy Code.  Texas has very good exemptions.  In most Chapter 7 bankruptcy cases the debtor does not lose any property.  In Chapter 13 bankruptcy debtors do not lose any of their assets.  The creditors in the bankruptcy plan are paid from future income.

Q: Can I change from Chapter 13 bankruptcy to Chapter 7 during the pendency of the case?

A: If you are in a Chapter 13 bankruptcy case but are eligible for Chapter 7 relief you can convert your case at any time.

Q: Can I leave some of my creditors out of the bankruptcy?

A: All creditors have to be listed in the bankruptcy schedules.  Unsecured creditors have equal opportunity to get paid in bankruptcy cases.  You are not allowed to show preference to one creditor over another.  Secured creditors get paid according to the reorganization plan in Chapter 13 cases.  In Chapter 7 cases the debtor may choose to surrender the property, reaffirm the debt and continue to make payments, or redeem the property by paying the creditor a single payment equal to the value of the collateral.

Q: If I file bankruptcy will I lose my retirement accounts?

A: Most types of retirement accounts are exempt from the bankruptcy estate.  This means that they are protected from seizure by the trustee in a bankruptcy case.

Q: How long will the bankruptcy stay on my credit?

A: Chapter 7 cases stay on your record for 10 years and Chapter 13 cases stay on your record for 7 years.