Bankruptcy Law

We have extensive experience in bankruptcy law and work closely with our clients so that they can use bankruptcy strategically and appropriately. See our Answers to Common Bankruptcy Questions below, or contact us to schedule a free consultation.  You might also be interested in our bankruptcy information website.

Bankruptcy Process

1. When you contact us we’ll set up a free consultation meeting where we’ll talk with you to understand your situation and answer any questions you have. If you decide that bankruptcy is the right option for you, we can begin drafting the petition in that meeting or, if you would like time to think about it, you can set up another meeting for a later date.

2. If the petition needs to be revised we can do that by email or phone, and then you’ll need to come in to sign it.

3. The “341 Meeting,” a meeting with a trustee appointed by the court, usually takes place about 30 days after we file the petition. This is usually an uneventful fact-finding meeting in which the trustee makes sure everything is in order.

4. At this point your role in the process is complete. Usually at about 60 days after the 341 meeting you will receive a discharge letter which formally discharges your debts.

Answers to Common Bankruptcy Questions

  1. “I’m looking for an Austin bankruptcy lawyer. What should I look for?”
  2. “What are the different bankruptcy chapters?”
  3. “What are common mistakes that people make in bankruptcy?”
  4. “What do you think of debt counseling services?”
  5. “If I file bankruptcy, what can I keep?”
  6. “How does the bankruptcy process work?”
  7. “What if I am behind in my mortgage payments but I want to keep my house?
  8. “Can I discharge my student loans in bankruptcy?”
  9. “How soon can I stop my creditors from harassing me?”
  10. “How will bankruptcy affect my credit?
  11. “Will I be able to keep my tax refund?
  12. “Can I be fired because of my bankruptcy?
  13. “Can I be denied access to student loans because of my bankruptcy?
  14. “What are the most common reasons for filing bankruptcy?
  15. “Should I feel guilty about filing for bankruptcy?
  16. “Can a collection agency add interest to my debt?
  17. “A collection agency sued me and won. What collection measures can it now take against me?
  18. “Will my spouse be affected if I file bankruptcy?”
  19. “Who will know if I file bankruptcy?
  20. “Can I keep any credit cards after filing bankruptcy?
  21. “Will I ever get credit again?”
  22. “How do I go into bankruptcy?”
  23. “Can I protect my co-signers from my creditors coming after them?”
  24. “I have more questions…”

1.  “I’m looking for an Austin bankruptcy lawyer. What should I look for??”

Look for someone with experience in bankruptcy, who is responsive when you contact their office, and who strikes you as sharp and knowledgeable. See this post on Hiring a Bankruptcy Lawyer – or Any Lawyer for that Matter for more details

2.  “What are the different bankruptcy chapters?”

They refer to different parts, called chapters, of the bankruptcy law. Individuals may use Chapter 7 (liquidation) or Chapter 13 (reorganization). Chapter 7 gives you a fresh start by immediately discharging your unsecured debts (such as credit cards and medical bills). Businesses may use Chapter 7 to liquidate or Chapter 11 to reorganize their business and repay their debts over a period of years under a “plan.” Business that wish to continue as going concerns must use Chapter 11.

3.  “What are common mistakes that people make in bankruptcy?”

  • Waiting until they are too short of cash to afford attorney’s fees.
  • Pulling money out of exempt assets like their house or their 401k in an attempt to keep up with debt payments, and then having to file anyway. If they had left those assets untouched and filed earlier, they could have kept those assets.
  • Continuing to make payments on credit cards, medical bills, or other dischargeable debts after it has become clear that they are going to have to file. They could have held onto those payments and filed sooner.
  • Going to debt counseling services.
  • Waiting too long to consult with an attorney. Consultations are free.
  • Taking cash advances or buying luxury goods or vacations shortly before filing.
  • Filing before their situation has stabilized. When this happens, they continue to incur debts even after they have filed, but the new debts are not discharged in the bankruptcy.

4.  “What do you think of debt counseling services?”

I think many of them are scams. I have seen instances where the debt counseling service set up a payment plan, instructed the client to send them the money, promised to pay the credit cards each month, but instead pocketed the money.

The other problem with debt counseling services is that they are simply not very useful.  If you are very close to being able to pay off your debts, they may be helpful, but in that case why do you need a debt counseling service? If you are so underwater that you are not realistically going to dig your way out, give up and file bankruptcy before you “throw good money after bad” trying to service credit card debt that is just too overwhelming.

5.  “If I file bankruptcy, what can I keep?”

Individuals may keep their “exempt assets.” In Texas you can choose to use the Texas or the federal list of exempt property. Generally speaking, you can keep your house and its furnishings, your car, and your retirement accounts. You can not keep “extras” like a boat, vacation home, a second home that you rent out to tenants, expensive gun collections, etc.

Businesses generally do not have exempt assets.

6.  “How does the bankruptcy process work?”

You file your bankruptcy petition which lists all of your assets, debts, sources of income for the past two years. A trustee will be appointed to examine your case for non-exempt assets which may be seized and distributed among the creditors. About 30 days later, you have your 341 meeting with the trustee. (This meeting is named after a section of the bankruptcy code). At this meeting your creditors can appear to challenge your Petition and tell the trustee about your secret Swiss bank account.  That is a joke.  Creditors almost never show up for personal Chapter 7 cases.

7.  “What if I am behind in my mortgage payments but I want to keep my house?

If you are only a couple of months behind, you may be able to file a Chapter 7 and catch up on your payments quickly, while the Chapter 7 case is pending and the stay is in effect.

If you are several months behind, you should consider a Chapter 13 bankruptcy. This will give you several years to catch up on your arrearages.

Under a Chapter 13, a plan for the repayment of debts is created by you and your attorney and, with the approval of your creditors, confirmed by the Court. The process of creating the plan and getting it approved by creditors and confirmed by the court takes about 9 months. Upon successful completion of the plan, the bankruptcy is discharged.

8.  “Can I discharge my student loans in bankruptcy?”

Student loans are not dischargeable in bankruptcy. See here for a list of other types of debts that can not be discharged.  Student loans are toxic.  I have seen them cause a great deal of distress.  Pay them off as quickly as you can.  And tell your friends and family be very wary of incurring student loan debt.  They are bad news.

9.  “How soon can I stop my creditors from harassing me and what is the Automatic Stay?”

As soon as you hire a bankruptcy lawyer, you can direct them to call your lawyer instead of you, then as soon as you file your bankruptcy Petition, the Automatic Stay goes into effect, and their collection activities must cease. The Automatic Stay protects debtors in bankruptcy. All of the creditors included in your petition will quickly receive notice of your filing. Throughout the period of the stay, creditors are prohibited from beginning or continuing judicial proceedings against you, creating, enforcing or perfecting a lien on your property, performing a setoff, or otherwise attempting to collect any property that belongs to you. The Automatic stay is generally in place until your discharge.

10.  “How will bankruptcy affect my credit?

Bankruptcy will be on your record for 10 years, and obviously it is a negative factor on your credit report. However, many people see their credit score go up within a couple of years after they file bankruptcy (esp. a Chapter 7) because they have a lot less debt and so they are better able to repay any new debt.

Generally speaking, two to three years after you file you are eligible to apply for a consumer home mortgage loan on the same terms as someone who has never filed bankruptcy.

Also, most people who have filed bankruptcy are wary of borrowing again, so they may not care very much about their credit score.  See our bankruptcy information site for more details on this.

11.  “Will I be able to keep my tax refund?

Tax refunds are assets of your bankruptcy estate and are not exempt, so probably not. However, under the federal exemptions, if the equity value of your home is low enough, you can exempt up to about $11,000 worth of any property, including cash from a tax refund.

12.  “Can I be fired because of my bankruptcy?

No, but it’s not hard for an employer to find a reason to fire an employee. Also, employers can deny employment to an applicant based on their credit report. But, generally speaking, firings and refusals to hire because of bankruptcy are rare.  This is partly because filing bankruptcy is so common that all HR people are very familiar with it.

13.  “Can I be denied access to student loans because of my bankruptcy?

No. The bankruptcy alone will not automatically disqualify you. But you still must meet all requirements of the student loan program.

14.  “What are the most common reasons for filing bankruptcy?

Loss of job, business failure, illness, medical bills, and divorce.  Over 90% of bankruptcies are precipitated by one or more of these factors.

15.  “Should I feel guilty about filing for bankruptcy?

Unless you are abusing the system, you should absolutely not feel guilty about it. The bankruptcy laws are there for a reason. Life is risky, and if you get in over your head, you need to hit the reset button and start over. It’s perfectly normal, and it’s perfectly necessary sometimes. See the question immediately above. These things can happen to anyone.  And don’t listen to Dave Ramsey.

16.  “Can a collection agency add interest to my debt?

Yes. The Federal Debt Collection Practices Act allows a collector to add interest if your original agreement calls for the addition of interest during collection proceedings or the addition of such interest is allowed under state law. Every state authorizes the collection of such interest.

17.  “A collection agency sued me and won. What collection measures can it now take against me?

Before obtaining a court judgment, a bill collector generally has only one way of getting paid: demand payment. This is done with calls and letters. However, once the collector (or creditor) sues you and gets a judgment, the law allows it to take further steps to collect the debt. The collector may try to seize bank or other accounts of yours. If you own real property other than your homestead, the collector may record a lien against it, which will have to be paid when you sell or refinance your property. Even if you’re not currently working or have no property, the judgment won’t disappear. Court judgments last for years, and in many cases can be renewed. If a collection agency files suit against you or wins a judgment against you, contact an attorney immediately. You may need to consider a prompt bankruptcy filing to preserve the rest of your assets.

18.  “Will my spouse be affected if I file bankruptcy?”

Your wife or husband will generally not be affected by your bankruptcy if they are not responsible (did not sign an agreement or contract) for any of your debt. If they have a supplemental credit card on your account they may be responsible for that debt. Texas is a community property state, and some people feel that the concept of “community debt” exists in Texas. I think that’s generally incorrect, but it’s a more complicated issue than I can explain here.

19.  “Who will know if I file bankruptcy?

Bankruptcy filings are public records. However, under normal circumstances, very few people will know (or care) that you filed.

20.  “Can I keep any credit cards after filing bankruptcy?

As soon as the credit card company hears of the bankruptcy, they will shut your credit account because they can no longer attempt to collect on it.  However, in rare cases, they may issue you a new credit card.

Debit cards are different.  They are not loans or credit and are generally not cancelled during bankruptcy.

21.  “Will I ever get credit again?”

Yes! A number of banks now offer “secured” credit cards where a debtor puts up a certain amount of money (as little as $200) in an account at the bank to guarantee payment. Usually the credit limit is equal to the security deposit and is increased as the debtor proves his or her ability to pay the debt.

Two to three years after a bankruptcy discharge, debtors are generally eligible for mortgage loans on terms as good as those of others with the same financial profile who have not filed bankruptcy. The size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past.

22.  “What is involuntary bankruptcy?”

There are two ways a person can become a bankrupt. The first and more common way is for the person to file a Petition voluntarily. The second, and rarely used way, is for creditors to ask the Court to issue an order that a person is bankrupt. In both these cases, a trustee is appointed to administer the bankruptcy.

23.  “Can I protect my co-signers from my creditors coming after them?”

If you file a Chapter 7, probably not. If you file a Chapter 13, maybe.  Either way, your co-signer should have his or her own consultation with a bankruptcy lawyer.

24.  “I have more questions…”

Please contact us.

If you’re in the market for an Austin Bankruptcy Lawyer, we hope you chose us