Bankruptcy and your home, your vehicle, foreclosure, lawsuits and tax debts

Because filing for bankruptcy is a complicated procedure, it is wise to consult an attorney if you feel bankruptcy may be the only solution to your insolvency. Both individuals and businesses have a number of options when deciding on the form of bankruptcy that best meets their circumstances. Common questions include, ‘‘Which of debts can be wiped out? Can I keep my car or my home? Can filing for bankruptcy stop foreclosure on my home? What if my mortgage lender is initiating a foreclosure? Will I still have to pay my tax debts?’’ The type of bankruptcy you and your attorney decide to file will make a difference in what assets you can keep, which debts will be discharged and which you will have to pay from the proceeds of a liquidation or through a repayment plan.

In a Chapter 7 bankruptcy most unsecured debt is discharged except for:

• Child support and alimony
• Debts for personal injury or a death you caused due to drunk driving
• Student Loans
• Income tax debt

If you file for Chapter 13 bankruptcy, your repayment Plan will have to include payments for the following debts, if you have them. If these debts are not paid through your Plan, the balance will remain at the end of your case:

• Recent income tax debts and all other tax debts
• Child support and alimony
• Debts for personal injury or death caused by your intoxicated driving; and student loans from government organizations, unless it would be an undue hardship for you to repay
• Fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution
• Debts you may have forgotten to list in your list of creditors, when you filed your bankruptcy papers

Any individual who files for bankruptcy can file for bankruptcy exemptions. An exemption in bankruptcy allows a debtor to keep certain property or assets even after bankruptcy is filed. The exemptions are defined by statute, and exempt property cannot be seized or sold to satisfy the debts of the person filing for bankruptcy. Texas residents who file bankruptcy may follow either the Texas statute or the federal statute when claiming exemptions.

Exemptions are available for chapter 7 and chapter 13 bankruptcy filings, but the exemptions vary from one state to another. The following exemptions are allowed under Texas bankruptcy laws:

• Homestead (equity in dwelling used as residence)
  • Property cannot exceed 1 acre in a town, village, or city or 100 acres elsewhere (200 acres for families)
  • Unlimited value in property
• Personal property
  • Up to $30,000 in value (double for families) and includes:
    • Home furnishings
    • Family heirlooms
    • Sporting equipment
    • 2 firearms
    • 1 automobile per driver in the family
    • 2 horses, mules, or donkeys
    • 12 head of cattle, 60 head of other livestock, 120 fowl, and pets
• Tools of the trade
  • Farming vehicles and equipment
• Insurance
  • Church benefit plans
  • Life, health, or annuity benefits
• Pensions
  • ERISA qualified benefits needed for support
  • State, county, district, and municipal employees (including police and fire fighters)
  • IRA’s needed for support
• Public benefits
  • Unemployment
  • Worker’s compensation
  • Public assistance
  • Social security
  • Veteran’s benefits

a. Bankruptcy and Your Home

Under a Chapter 7 bankruptcy, all assets are liquidated with the exception of certain exemptions, thus the debtor may lose his home. Generally, if a debtor has substantial equity in a home, filing a Chapter 13 bankruptcy may be a better option.

Under Chapter 13, a debtor typically keeps all of his property, and files a Court supervised plan to repay his debts. Reviewing your finances with a bankruptcy attorney can help you to determine whether you would lose your home in a Chapter 7, thus making Chapter 13 a more viable option.

b. Bankruptcy and Foreclosure

If a debtor is facing foreclosure, filing for bankruptcy may or may not make sense, depending on other obligations and sources of income. Legal advice from a trusted bankruptcy attorney can help you determine your best course of action.

Filing a Chapter 7 bankruptcy will temporarily stall your lender’s right to foreclosure. The lender will have to seek permission from the trustee who is handling the liquidation and distribution of your assets, to go forward with the foreclosure proceedings. Still, a Chapter 7 never permanently stops a foreclosure, unless the creditor agrees and homestead (exemption) laws prevent the trustee from selling the property. Bringing your account up to date is another way to stop a foreclosure, however, most people who file for bankruptcy are so far behind on their mortgage that they can’t afford to bring payments up to date. Once a debtor files a Chapter 13 bankruptcy, a bank is prohibited from attempting a foreclosure. And, if the lender has already initiated a foreclosure, the Chapter 13 allows the debtor to keep his home and the Chapter 13 repayment Plan provides for continuing monthly payments on the mortgage, and paying off the arrearages over the life of the Plan (three to five years).

c. Bankruptcy & Your Vehicle

If you are behind on your car loan, and want to make up the missed payments over time and reinstate the original agreement, you can do so in a Chapter 13 bankruptcy. You cannot, however, do this in Chapter 7 bankruptcy. You can make up missed payments only in Chapter 13 bankruptcy.

d. Bankruptcy and Lawsuits

When you file a Chapter 13 bankruptcy, just as in a Chapter 7 bankruptcy, an automatic stay goes into effect which puts a stop to any lawsuits that creditors have brought against you in an effort to collect debt.

e. Bankruptcy & Taxes

Most tax debts can’t be wiped out in bankruptcy. You will have to repay them in full in a Chapter 13 bankruptcy repayment plan. However, there are some circumstances which discharge tax debt, under the 3 Year Rule, 2 Year Rule and 240 Day Rule which your bankruptcy attorney can explain if reviewing your tax history reveals that these exceptions apply to your situation.

f. Bankruptcy and Student Loans

Student loans are not dischargeable under bankruptcy, unless the debtor can establish undue hardship. For a student loan to be dischargeable, a debtor must establish that if forced to repay, the student loan he will be unable to maintain a minimal standard of living for himself and his dependents, his solvency will not be corrected for significant period of time, and he has made a good faith effort to repay the student loan prior to the bankruptcy filing. Few debtors, however, are able to meet the high standards of undue hardship.

If you are in serious financial trouble, you may be able to file for bankruptcy. And, seeking legal advice is essential, when you need explanations of the complicated bankruptcy codes.

At Bailey & Galyen, our bankruptcy attorneys can help you assess your legal options and determine if you are eligible to file for bankruptcy. Contact our law firm, fill out our online case questionnaire, or you may call us at 800-529-8008 to arrange a no-cost, no-obligation consultation.