bruce magness attorney at law 
 

What is Bankruptcy?

      Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court under a federal law known as “The Bankruptcy Code.” Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law.  This is why it is known as “filing for relief under the Bankruptcy Code.” A person who files for relief is known as a “Debtor.”

      The persons to whom a Debtor owes money when he files are known as “Creditors.” Creditors who have loaned money with no security (e.g., credit cards, signature loans) are known as “unsecured creditors.” Creditors who have taken a lien or mortgage to secure repayment of their debt are called “Secured Creditors” (e.g., your home mortgage, your car installment loan with a lien shown on your title)

      A Debtor is said to “earn” a “Bankruptcy Discharge” through the bankruptcy process by meeting all eligibility requirements, disclosing all important facts through completing and signing certain forms and through testimony at what is usually a short meeting (called a “341 Meeting”, which occurs about five weeks after filing of the case in a meeting room at the federal building) under oath and under penalty of perjury.

       The great majority of bankruptcy cases filed under Chapter 7 (and many cases filed under Chapter 13) result in the Debtor who filed the case obtaining a Discharge of debt while retaining all of his or her property through “exemptions” allowed by law.

       Property is said to be “exempt” when it is “exempt” from being taken for debt by creditors who are owed money, meaning the Debtor may keep it. “Exemptions” are stated in the law, and there are two types of exemptions in cases filed in Texas, federal and Texas. A Debtor must select one or the other, and if the case is filed jointly, by husband and wife, both must use the same set of exemptions. The most common examples of exemptions are the homestead and cars, and the like.

       Exemptions do not, however, relieve the Debtor from paying a purchase money or home improvement or home equity mortgage on the exempt homestead, nor a purchase money  installment payment on the exempt car. If a Debtor is current on these debts when he or she files, and files for relief and discharge from other debts under Chapter 7, the payments by the Debtor will continue as before on the homestead and car, without regard to the bankruptcy. If the Debtor is behind on these exempt items, the Debtor may choose to use a Chapter 13 to bring them current so as not to lose them while paying what debts he can under the Chapter 13 plan. More on the treatment of these mortgages and liens follows below.

 


 
The determination of the need for legal services and the choice of a lawyer are extremely important decisions and should not be based solely upon advertisements, certification, specialization or self-proclaimed expertise. This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.