When you finally reach the moment when you consider bankruptcy, it is a momentous time for most people. After fighting mounting debts for so long, you conclude that there is no other course of action open to you. This is when you start to consider the question, “What do you lose if you declare bankruptcy?”
The first thing you are going to lose when you file for bankruptcy is the pressure from debt collectors knocking on your door. You will lose the fear of opening letters and answering the phone. Once your petition for bankruptcy is filed, all those things come to an end. Your creditors are informed and must immediately stop chasing any debt you owe.
Telling Your Creditors
It is not wise to tell your creditors that you are about to declare Chapter 7 bankruptcy. This may encourage them to get in first and take drastic action against you. It is best to ignore them while waiting to file. If you are employing the services of a bankruptcy counsel, then you can refer them to your lawyer and they have to stop calling you.
Filing Chapter 7 Bankruptcy
Filing Chapter 7 bankruptcy is an incredibly powerful weapon that can help you get out of poverty. It can wipe the slate and get you that fresh start. It erases your debts and can relieve a great deal of stress that you have suffered for so long. However, it is an important decision to make and should not be taken lightly.
You may be required to complete a means test to ensure your eligibility to file Chapter 7. The purpose of this means test is to ensure that you really are unable to pay your debts. Congress was becoming concerned that some people were applying for Chapter 7 bankruptcy, even though in reality they could afford to pay at least some of their debts. Their reaction was to introduce the means test to counter this issue.
In Texas, if this is your first bankruptcy you will meet the initial requirements to apply for bankruptcy. So moving on to the question uppermost in your mind, “What do you lose if you declare bankruptcy?”
What Will You Lose When You File For Bankruptcy
- The fact you are bankrupt becomes a matter of public record and it is open to the public to read, should they so wish. The reality is that very few people will ever look.
- You will lose luxury items; these are items not protected by an exemption. These luxury items will be sold off by the liquidator and the proceeds paid to the people to whom you owe money. We will look at exemptions in a moment.
- You will need to rebuild your credit, but quite often by the time you reach bankruptcy it is already shot, and bankruptcy can be the fastest way of rebuilding your credit rating (over time).
- If you have debts with a cosigner, your bankruptcy petition does not protect them. The only type of bankruptcy that will protect cosigners is a chapter 13 bankruptcy, and that only works because you end up paying off the debt through a repayment plan. You should seek a lawyer for advice on this.
State exemption laws can protect certain kinds of property from creditors in bankruptcy. These exemptions can include an inexpensive car, tools of your trade, and even a retirement account. The idea of bankruptcy is not to take away everything, just to give you a new start and the interest of your creditors.
Applying for Bankruptcy in Texas does not differ much from any other state as the process comes under Federal law. However, In Texas, you have the choice of using Federal Exemptions or choosing to use State Exemptions, which are very generous. You may also apply for the federal non-bankruptcy exemptions, which are more specific.
Here are the most significant exemptions you can claim in Texas:
Texas Homestead Exemption
Texas offers a very generous unlimited extension for homesteads for a residence that is 10 acres or less in a city, town, or village, and a massive 100 acres in the countryside. With a family, it is possible to double the acreage to 200 acres.
Texas Motor Vehicle Exemption
The exemption for motor vehicles in Texas is very generous and allows you to exempt the entire value of one motor vehicle per licensed household member. Even if they d not have a license they can claim an exception if they rely on someone else to operate the vehicle.
Texas Personal Property Exemptions
This cannot exceed (not including real estate) a total of $50,000 for a single adult and $100,000 for a family. If, for example, your family’s personal property came to $150,000 then the first $100,000 would be exempt. There are also certain other exemptions like Professionally prescribed health or Unlimited amounts of Bibles or other sacred writings. You really should get legal advice on exceptions. It can make a real difference.
Careful Exemption Claims
Your exemption claims are going to be reviewed by the bankruptcy trustee. If he does not agree with your claims, he will typically informally talk with you about it, and if he fails to make you see the reason he can, and will, file an objection, and then it goes before a judge.
Most people will try to employ counsel if they can find a way of covering the costs. He can really save you money and stress during the process. However, if you cannot afford it, then it is possible to handle it yourself.
Many people who have filed for bankruptcy have been able to have a fresh start in life, wiping out their debt while still retaining much of their property. You will possibly be afraid that bankruptcy will totally wipe out your credit score and remain on your record for ten years. With care and responsible financial planning, it is surprising how quickly your credit score can be improved in a matter of months.