Bankruptcy Blog

by Jim K. Ince

“Can I keep my stuff?” is one of the most common questions asked by a bankruptcy client of Bailey & Galyen, and for the overwhelming majority of our clients, the answer is yes … you can keep your stuff after a bankruptcy.

Assuming you have lived in Texas at least two years before the filing of a bankruptcy, you can choose between the Texas and federal “exemptions” — laws that allow you to protect and keep property through a bankruptcy. The choice of exemptions is an important legal decision that will be based on the kind of property you own and its value, and at Bailey & Galyen our job is to maximize your exemptions. Both exemption paths have a few things in common:

• Homesteads are exempt from your ordinary creditors. Mortgages, taxes and certain other debts remain on your home.
• Most vehicles are exempt from your ordinary creditors but, like houses, are subject to valid debts from any vehicle finance company.
• Retirement assets (such as 401(k)s, IRAs, pensions, teachers’ retirement, etc.) are exempt from your creditors.
• Most if not all of your personal property assets are also exempt from ordinary creditors (unless they have a “purchase money” lien on them like a car loan). This includes furniture, clothing, jewelry, tools of the trade, pets and household goods.

There are important limits on exemptions, and here at Bailey & Galyen our job is to apply the law to your specific situation so you know what your options are. Even if you own property of a kind that is normally not exempt, there may be bankruptcy options available to you that allow you to keep nonexempt property.

On a related note, you can also keep certain debts. Depending on the chapter of bankruptcy selected and your payment status with the creditor, you are generally able to keep debts on necessary property, such as your homestead and vehicle. “Reaffirming” these debts in a chapter 7 bankruptcy allows those debts to survive the bankruptcy so that you can keep the collateral (house or car) and hopefully rebuild your credit by continuing to pay those particular creditors.

When a federal appeals court recently ruled that Chapter 13 debtors must meet the income eligibility requirements of section 707(b) before their case be converted to a Chapter 7, it joined an increasing chorus of cases with similar holdings. However, the court left an important question unanswered: Which six months of look-back income will the Court require for the purposes of calculating the debtor’s Means Test?

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In the consolidated appeal of two Iowa and Minnesota cases, In re Chapman and In re Cruse, Nos. 10-6046 and 10-6047 (8th Cir. BAP Mar. 11, 2011), the debtors had filed a Chapter 13 after the 2005 Bankruptcy Reform Act was enacted. However, a change of circumstances, they converted their chapter 13 cases to chapter 7s, requesting a discharge of their debts prior to the completion of their respective chapter 13 plans. The U.S. Trustee objected, arguing that based on the income they claimed to earn in their chapter 13 plans, they could afford to repay at least part of their debts.  The debtors countered that section 707(b) of the U.S. Bankruptcy Code governing the Means Test only applied when debtors initiated their cases as chapter 7s, not when cases were converted to chapter 7s from chapter 13 filings. Further, they contended that since their changed circumstances inhibited their ability to continue paying into their chapter 13 plans, they should not be subject to the Means Test.  The bankruptcy courts agreed with the debtors, ruling that section 707(b) only applied to cases originally filed as chapter 7s, not conversions. The U.S. Trustee appealed, and the bankruptcy appellate panel ordered the two cases consolidated for the appeal.  In ruling against the debtors, the appeals court held that under long-standing Eighth Circuit federal appeals court precedent, the term “conversion to chapter 7” is synonymous with “filed under chapter 7.” However, since the appeals court did not address the income look-back requirement of section 707(b), future litigation on the matter is likely.

To discuss your bankruptcy matter with a Texas Bankruptcy Lawyer to determine whether you qualify for a Chapter 7 bankruptcy, please call us toll free at 877.345.6767 (DFW area), 866.715.1529 (Houston area) or 866.678.1900 (South Texas).

We provide affordable payment plans for fees. For additional information about personal bankruptcy, please visit our Personal 7 Bankruptcy Information page as well as our General Bankruptcy Information page.

When individuals or businesses file bankruptcy, something invisible yet incredibly resilient occurs. It serves to deflect the attempts by creditors and bill collectors to collect money owed by a debtor for services rendered or goods received.

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An important aspect of bankruptcy law is known as the ‘automatic stay.’ The ‘stay’ basically acts like Teflon against attempts to collect debts allegedly owed by a debtor. In the standard bankruptcy, the automatic stay remains in effect during the entire pendency of a bankruptcy. However, exceptions to that norm were enacted when Congress overhauled the U.S. Bankruptcy Code in 2005.
A major component of the Bankruptcy Abuse and Creditor Prevention Act of 2005, which served to overhaul the U.S. Bankruptcy Code, referred to automatic stays. As Congress contemplated how to tweak the laws about automatic stays, the general consensus was to write a law that would deter debtors from filing and dismissing a bankruptcy just to benefit from the protections afforded by the automatic stay.
So now, when a debtor files for bankruptcy, if it’s the first time that case was filed, the bankruptcy receives a complete automatic stay. However, say a debtor (business or individual) filed for bankruptcy within the last year and the case was dismissed prior to discharge, whether that occurred because the debtor requested it or the court ordered it. If that case is refilled within a year, it will enjoy an automatic stay of 30 days.
If a debtor files and dismisses the same case several times, the case will not benefit from an automatic stay at all. Congress wanted to ensure that debtors are not abusing the privilege of the automatic stay, so it decided there are situations when a bankruptcy filing does not benefit from an automatic stay, at all.
Contact a Texas Bankruptcy Attorney – If you would like to obtain additional information about Texas bankruptcy, explore your options, learn about the bankruptcy process or discuss your particular situation with an experienced Texas Bankruptcy Attorney, please schedule a free initial consultation by calling us toll free at 877.345.6767 (Dallas – Fort Worth area), 866.715.1529 (Houston area) or 866.678.1900 (South Texas). If you prefer, you can also fill out our intake form and we contact you to schedule a consultation.

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