To Discharge Your Debts, Be Honest with the Bankruptcy Court

Bankruptcy law allows you to discharge (write off) most or all of your debts, but you must be candid and accurate in the documents you file with the court and with what you tell the bankruptcy trustee.

Through Bankruptcy You Can Usually Discharge Most of Your Debts

If you file a Chapter 7 “straight bankruptcy” case, the Bankruptcy Code says that the bankruptcy “court shall grant the debtor a discharge” with only certain limited exceptions. See Section 727(a). If you file a Chapter 13 case, the Code states that “the court shall grant the debtor a discharge of all debts,” again with only certain limited exceptions. See Section 1328(a). As long as those exceptions don’t apply to your debts, they will be discharged and you’ll have a fresh start.

There are two sets of exceptions. The first set applies to specific debts. For example, some debts aren’t discharged because of the nature of the debt; child support and some income taxes are examples. On the other hand, some debts may not be discharged because of the debtor’s inappropriate behavior related to the debt, such as the embezzlement of funds or fraudulently incurred loans. But both of these kinds of exceptions apply on a debt-by-debt basis and are not the topic of today’s blog.

The Risk of Not Discharging ANY of Your Debts

The second set of exceptions doesn’t just relate to a specific debt or two, but rather to the debtor’s ability to receive a discharge of ANY debts. This exception is based on the simple rationale that for a person to receive the benefits of bankruptcy, he or she must be honest in going about it.

The type of dishonesty that would risk you losing your right to an overall discharge usually involves either property or financial records. Here are the kinds of behavior that can potentially result in you not being able to discharge your debts:

  • Hiding or destroying your assets within a year before filing for bankruptcy
  • Hiding or destroying assets that are under the legal right of the bankruptcy case after the bankruptcy case is filed
  • Hiding, destroying, falsifying or failing to keep records about your financial condition
  • Failing to satisfactorily explain a loss of assets before the filing of bankruptcy
  • Making a false oath

Bankruptcy is an unfamiliar and potentially uncomfortable process to go through without some experienced guidance. The written and oral questions that you’re asked can be very confusing. Even assuming you are completely honest, it’s easy to wonder if your answers are going to cause problems. If you live in the Dallas-Fort Worth metroplex, the attorneys at Fuller & Eason can help you discharge your debts. Please call us for a free, no-obligation, confidential consultation at 214-516-6187. Or you can reach us here. Thank you for visiting our website and blog.

“Can I Keep My Stuff?”

“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 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 401ks, 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), such as 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 non-exempt 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.