At the end of a successful bankruptcy case, a filer’s qualifying unsecured debt load is discharged by the court. After a specific debt balance has been discharged, the filer is no longer responsible for its repayment and creditors can no longer ask that it be repaid. Although not all unsecured debts are dischargeable in bankruptcy, two of the most common sources of financial anxiety for American families – credit card debt and outstanding medical bills – are dischargeable upon the conclusion of a successful bankruptcy case.

There are two primary reasons why eliminating credit card and medical debt via bankruptcy is often so beneficial for families. First, alleviating the pressure of paying these accounts every month can dramatically impact the stress level within a household for the better. Second, freeing up the funds that would ordinarily be used to pay these accounts means that they can be directed elsewhere.

The Benefits of Having More Liquid Income

According to a recent Bankrate survey, more than one out of every three Americans has more credit card debt than savings to be utilized only in the event of an emergency. What is particularly striking about that statistic is that it reflects more than an 11% increase from the number of Americans who were struggling with these circumstances only one year ago.

Per the requirements of Executive Order 12968, an applicant for security clearance must consent to the review of their financial records and consumer reports. As a result, when an applicant submits a security clearance application, those who are investigating their fitness for this access will see if the applicant has recently filed for bankruptcy. This can be a tough reality to swallow for someone who is eager to leave the consequences of their debt relief needs behind them.

There are so many benefits that bankruptcy filers experience when they take advantage of this personal debt relief opportunity. Yet, it is undeniable that filing for bankruptcy can lead to some challenges under certain circumstances too. For instance, while filing for bankruptcy is not likely to impact the outcome of an applicant’s security clearance investigation, it could if aggravating circumstances apply to an individual’s situation.

The Subjectivity of the Security Clearance Application Process

When individuals apply for employment within a federal government agency, they are generally subjected to a suitability determination in order to better ensure that they meet the criteria set forth in Executive Order 10450. This EO explicitly insists that those who are employed by the federal government must not only be loyal to the U.S., but they must also be trustworthy, of solid conduct and character, and they must be reliable.

Homeownership can be very rewarding, and a home is often one of the best financial investments an individual or married couple can make. Unfortunately, a family can encounter financial setbacks that may affect their ability to make ongoing mortgage payments. Defaulting on a mortgage may put a homeowner at risk of foreclosure, and in addition to potential financial losses, they may be concerned about their family's ability to continue living in their home. However, there are options available for homeowners who are facing these difficult situations. Filing for bankruptcy is one such option, and it can provide a family with some much-needed protection from creditors while providing them with options that will allow them to maintain ownership of their home.

Understanding Bankruptcy

Bankruptcy is a legal process in which an individual or married couple declares that they are unable to pay back their debts. Depending on the type of bankruptcy filed, a debtor may be able to completely eliminate some or all of their debts, or their debts may be reorganized to ensure that they can make affordable ongoing payments.

If you are considering filing for bankruptcy, you have multiple options. Chapter 13 bankruptcy may be the preferred choice in situations where you want to avoid the loss of your assets or where you wish to avoid foreclosure and maintain ownership of your home. In a Chapter 13 bankruptcy, a repayment plan will be created, and you will make ongoing payments toward this plan for several years. If your income is below the median income in your state, your repayment plan will last for three years. If your income is above the median, you will be required to make payments for five years. The amount you will be required to pay will be based on your disposable income. However, the process of calculating your disposable income can be complicated, and you will need to understand the factors that may affect the amount you will pay and your ongoing financial concerns.

How Disposable Income Is Calculated

Disposable income is the money that you have left over after you pay your essential living expenses. You should be able to make sure you will have sufficient financial resources to support yourself and your dependents during a Chapter 13 bankruptcy. After calculating the amount you earn and setting aside reasonable amounts that are necessary to meet your own needs and those of your family, the remaining amount may be put toward your Chapter 13 repayment plan.

If you are considering bankruptcy, you may have multiple different types of debts, and it is important to know how these debts will be handled during your case. Specifically, if you are planning to file for Chapter 7 bankruptcy, you will want to understand how your unsecured debts will be addressed. This can ensure that you will be able to eliminate your debts successfully and achieve a fresh financial start. 

What Are Unsecured Debts? 

A debt is considered to be unsecured if it is not backed by collateral. That is, rather than having the assurance that they can take possession of property such as a car or home, a creditor will rely on the promise that the amount owed will be repaid. The most common types of unsecured debts include medical bills, credit cards, payday loans, utility bills, and personal loans. These debts do not have an asset attached to them that can be repossessed and sold off if the debt goes unpaid; instead, creditors may take legal action against you if you fail to make payments on your unsecured debt, and they may attempt to recover the amount owed through a judgment in court. 

New laws are passed regularly, and in many cases, they go into effect on the first day of the following year. However, keeping up with changes to the law can be difficult, especially for members of the general public who are not well-versed in legal issues. It can be important to be aware of these changes, because they can affect people's lives in many ways. One Texas law that took effect on January 1, 2023 may play a role in cases involving bankruptcy or other debt-related issues. This law gives debtors more options for preventing creditors from seizing their assets following a legal judgment.

New Procedures for Claiming Exemptions to the Seizure of Personal Property by Creditors

HB 3774 made a number of changes to the justice system in Texas, but one of the most important changes involved the rules that will be followed when debtors assert exemptions to asset seizure. This may be an issue in cases where creditors pursue lawsuits against debtors in an attempt to recover unpaid debts. After a creditor obtains a judgment against a debtor, they may then take action to seize the debtor's assets, including funds in bank accounts, vehicles, or other personal property. However, certain assets are exempt from seizure under the law, and HB 3774 required the Texas Supreme Court to implement new rules that will allow debtors to claim these exemptions and prevent the loss of their property.

Until November of 2022, student loans were nearly impossible to discharge in bankruptcy. The previous standard to discharge student loans required a total inability to repay student loan debt. In practice, this meant a debtor needed to be unable to ever work or earn a living.

Now, the Department of Justice, in close coordination with the Department of Education, is implementing a new process at the outset of adversary proceedings in which debtors seek to discharge federal student loans in bankruptcy. While the bankruptcy judge makes the final decision on whether to grant a discharge, the Justice Department can play an important role in that decision by supporting discharge in appropriate cases. The new process will help ensure transparent and consistent expectations for the discharge of student loan debt in bankruptcy; reduce the burden on debtors of pursuing such proceedings; and make it easier for Justice Department attorneys to identify cases where discharge is appropriate.

Under the Justice Department’s new process, debtors will complete an attestation form to assist the government in assessing the discharge request. The Justice Department, in consultation with the Department of Education, will review the information provided, apply the factors that courts consider relevant to the undue-hardship inquiry, and determine whether to recommend discharge. Even where the applicable factors may not support a complete discharge, where appropriate, the Justice Department will consider supporting a partial discharge. Justice Department attorneys will assess the undue-hardship factors in the following manner:

Being in debt can be a difficult experience, and debtors may not only face financial difficulties, but they may need to deal with harassment by creditors or concerns about foreclosure, repossession, or legal judgments. Filing for bankruptcy is often the best way to rectify these concerns, and the completion of the bankruptcy process will allow certain debts to be eliminated. However, debtors will need to be aware of the possibility that their bankruptcy case could be dismissed. By understanding why this might happen, debtors can take the proper steps to avoid any issues that could affect their ability to receive relief from their debts.

When Can a Chapter 7 Bankruptcy Be Dismissed?

Chapter 7 involves selling some of the debtor’s assets in order to pay off creditors, and it allows debts to be discharged relatively quickly. A Chapter 7 case can be dismissed if the debtor fails to complete the required credit counseling, does not provide full and accurate financial information, or fails to appear at any court hearings or meetings with creditors. In addition, a case can also be dismissed if the debtor intentionally tries to hide assets or commits any type of fraud during the bankruptcy process. 

When Can a Chapter 13 Bankruptcy Be Dismissed?

Chapter 13 is known as “reorganization bankruptcy” because it allows debtors to keep their property while reorganizing their debts into an affordable payment plan that will last for several years. A petition for this type of bankruptcy must include proof that the debtor has enough disposable income to make payments toward their debts over time. Therefore, if a debtor fails to comply with this requirement or fails to make payments on time under their repayment plan, then their case may be dismissed. In addition, the circumstances described above that may affect a Chapter 7 case may also lead to dismissal in a Chapter 13 filing. 

Divorce can be difficult enough in any situation, but there are some cases where large debts for one or both parties may lead to additional financial problems that will make it harder for a person to provide for themselves after ending their marriage. Fortunately, bankruptcy can provide an option for receiving relief from debts. However, if you are considering filing for bankruptcy during your divorce, there are a few things to keep in mind. 

Debt Division During Divorce 

Debts acquired during a couple's marriage (with some exceptions) will usually be split between the spouses during the process of dividing marital property. Depending on the extent of your debts and the other assets you own, you and your spouse may be able to work out arrangements for how to divide debts fairly. However, it is important to understand that if you have joint debts, such as a shared credit card account, you will both be responsible for repaying what is owed, regardless of the decisions you make during your divorce. If debts are allocated to one spouse, and that person fails to pay what is owed in the future, a creditor may take action to collect the amount owed from the other spouse. Because of this, it is often a good idea to determine your options for filing for bankruptcy while your divorce is still ongoing.

Filing for Bankruptcy Before Your Divorce Is Finalized 

It may be possible for you and your spouse to file for bankruptcy together while you are still married. This is generally an option in Chapter 7 bankruptcy cases, and by including your joint debts in your bankruptcy filing, you can wipe out all of the debt that you owe, ensuring that you and your spouse will both have the necessary financial resources once your divorce has been completed. This can be a good solution for debts such as credit cards and medical bills, and it will prevent the possibility that one spouse may file for bankruptcy in the future, leading creditors to attempt to collect payments from the other party.

While there are a number of reasons why people consider bankruptcy, they usually involve large debts and financial difficulties that affect a person's ability to meet their financial obligations. Unfortunately, the non-payment of debts can lead to additional difficulties, such as a potential repossession of a vehicle if a person is unable to make payments on an auto loan. If you are struggling to make your car payments, you may be wondering if bankruptcy can help you keep your car. Your ability to avoid a repossession or recover a vehicle that has been repossessed will depend on several factors, including the type of bankruptcy you file, the value of your car, and the amount you owe.

Can Bankruptcy Prevent a Repossession?

There are two different types of bankruptcy, and it is important to understand repossessions and vehicle loans will be treated in each of these options. In a Chapter 7 bankruptcy, also known as a liquidation bankruptcy, some of your assets may be sold off to repay your creditors, and your debts may then be discharged. In a Chapter 13 bankruptcy, also known as a reorganization bankruptcy, you create a repayment plan to repay your creditors over time. This repayment plan will last for several years, and once it is completed, the unsecured debts that still remain will be discharged.

If you file for Chapter 7 bankruptcy, the repossession process will be put on hold while your case is pending. Texas law allows one vehicle to be exempt from liquidation during bankruptcy for every member of your family with a driver's license. However, if you still owe money on your auto loan, defaulting on that loan or discharging it during bankruptcy will result in the lender repossessing your car. If you want to keep your car, you will most likely need to reaffirm the debt with the creditor, which means that you agree to continue making payments on the loan. If you do not have the financial resources to make up any missed payments, you may be unable to keep the vehicle.

If you are considering bankruptcy, you might be wondering what will happen to your home. While bankruptcy will allow you to discharge, or eliminate, most debts, your home mortgage is a loan that is secured by the equity you have in your home. In other words, the lender uses your home as collateral for the loan. If you fall behind on your payments or otherwise default on the loan, the lender can foreclose on your home. To avoid this, you may choose to file for Chapter 13 bankruptcy, which can actually help you pay off your mortgage over time, rather than having it forgiven. However, if you have a second mortgage or another junior loan on your home, such as a home equity line of credit, you may be unsure about how these loans will be treated during the bankruptcy process. In some cases, you may be able to use a process known as "lien stripping" to discharge these debts, which may reduce the total amount you will be required to repay.

Chapter 13 and Junior Loans

Under Chapter 13 bankruptcy, also known as reorganization bankruptcy, debtors are required to repay some of their debts over a three- to five-year period. During this timeframe, the court will create a repayment plan that details how much each creditor will be paid back. Unsecured debts, past-due amounts that are owed on secured debts, and other fees or expenses may be grouped into this repayment plan. This will allow the debtor to become current on their home mortgage or other secured debts, as well as any domestic support obligations they owe, and they will be able to repay some of what they owe to unsecured creditors. Once the full three- or five-year plan has been completed, any unsecured debts that remain will be discharged.

While secured creditors will generally be paid in full during a Chapter 13 bankruptcy, it may be possible to have second mortgages or junior loans discharged. Lien stripping may be an option if the value of a debtor's home has decreased and has become "underwater," meaning that they owe more on the primary mortgage than the home is actually worth. In these situations, there will be no equity in the home to secure a second mortgage or other junior loans, and these loans may be reclassified as unsecured debts. This will allow these loans to be "stripped off," and they will be discharged once the bankruptcy process is complete.

If you are struggling with debt, you may be looking at different options for getting your finances back on track, including filing for bankruptcy. However, you may have heard some things about bankruptcy that make you hesitant to file. It is important to get the facts before making any decisions about your financial future. There are a lot of myths and misconceptions out there about bankruptcy—and they deter many people from taking action when necessary. Here are some of the most common myths about bankruptcy, debunked:

Myth #1: Bankruptcy Will Ruin Your Credit Score

Truth: While a bankruptcy filing will stay on your credit report for seven to 10 years, this does not mean that your credit will be completely ruined. In fact, many people who file for bankruptcy see their credit scores increase within two years after their debts are discharged. If you are careful about using credit and make an effort to pay bills on time after your bankruptcy, you will most likely see your score continue to rise.

Myth #2: You Will Never Be Able to Get Credit Again if You File for Bankruptcy

Truth: While it may be more difficult to obtain new lines of credit right after a bankruptcy, it is certainly not impossible, and there are many lenders that can help people with bad credit get loans. In fact, many people who have filed for bankruptcy are able to get approved for credit within two years post-discharge. Once you start rebuilding your credit, you will likely find it easier to get loans at better interest rates.

For people who are considering bankruptcy, large debts have affected their lives and their finances in many ways. The requirement to make payments toward multiple debts each month may have become impossible, especially if a family is experiencing financial difficulties due to the loss of a job, unexpected expenses, or other issues. To make matters worse, late or missed payments may have led creditors to begin taking action to collect debts. People in these situations often experience harassment from creditors, which may include regular phone calls at home or at work, as well as threats to repossess property or even claims that a person could face criminal consequences due to failure to repay what is owed. 

One of the key benefits of filing for bankruptcy is the fact that doing so will put an "automatic stay" in place that will require creditors to stop attempting to collect debts. The automatic stay is a court order that will force creditors to cease any debt collection actions while the bankruptcy case is ongoing. For those who are thinking of filing for bankruptcy, it is important to understand how the automatic stay works and what it means for creditors.

The Effects of the Automatic Stay

The automatic stay will go into effect as soon as the bankruptcy petition is filed with the court. Creditors will be notified of the bankruptcy, and they will be prohibited from taking any actions to collect the debt. This includes wage garnishment, foreclosure, and repossession. In fact, it applies to any actions that a creditor may take against a debtor, including calling them to seek repayment or sending collection notices in the mail. If a creditor tries to collect a debt or take any action after the bankruptcy has been filed, they may be held in contempt of court. 

Debt can be a problem for many people, especially those who have suffered setbacks that have affected their income and financial resources, such as a serious illness that has limited their ability to work. Fortunately, bankruptcy can be an option for eliminating debts. When you file for bankruptcy in Texas, your case will be assigned to one of two chapters—Chapter 7 or Chapter 13. In order to qualify for Chapter 7, which will allow for the elimination of most debts within a few months after filing, you must pass the means test, which is a way of determining whether your income is low enough to allow you to file for this type of bankruptcy.

How Does the Means Test Work?

The means test is actually quite simple. First, your income is calculated by taking your total household income from the past six months and averaging it out to determine your monthly income. This number will be compared to the median income earned by people in Texas, and this amount will be based on the size of your household. For Texas bankruptcy cases filed after May 15, 2022, the median income for a single person is $55,441, or $4,620 per month. For a married couple, the median income is $74,636, and higher median incomes will apply if a person or couple has children or if there are others who live in their household. If your income is below the median for your family size, you automatically qualify for Chapter 7 bankruptcy.

If your income is above the median, this does not necessarily mean that you will not qualify for Chapter 7. In these cases, your disposable income will be calculated by taking your average monthly income and subtracting different expenses. These include things like mortgage or rent payments, car payments and transportation expenses, utility bills, medical expenses, food and clothing costs, and other necessary expenses. After determining your disposable income per month, this will be compared with the total amount of debt you owe. Generally, if applying your disposable income toward your debts for five years would result in less than 25 percent of your total debts being repaid, then you will pass the means test.

While debt is a significant concern for many people, and bankruptcy is an option that will allow many of these debts to be eliminated, this form of debt relief is often seen as a last resort. This is often because people are concerned about losing all of their assets, including their home or car, when they file for bankruptcy. However, this is not necessarily true, and in fact, many people can complete a "no-asset" bankruptcy in which all of the assets they own will be protected by exemptions. By understanding the exemptions that apply in your situation, you can determine whether you will be able to file for bankruptcy and keep as much of your property as possible.

Bankruptcy Exemptions in Texas

Generally, concerns about the loss of property will only apply in Chapter 7 bankruptcy cases. In this type of bankruptcy, the bankruptcy trustee will liquidate (sell) the debtor's nonexempt assets and use the proceeds to pay creditors. However, many people who file for Chapter 7 bankruptcy do not lose any property because they are able to protect all of their assets using the bankruptcy exemptions that are available in their state.

In Texas, the following exemptions apply in Chapter 7 cases:

Debt can be a serious issue that affects you and your family, and financial problems can have a significant impact on your credit. Missed payments can lower your credit score. If bankruptcy becomes necessary to wipe out debts and provide your family with a fresh financial start, this will not only cause your credit score to decrease further, but the bankruptcy will remain on your credit report for several years. A low credit score and a previous bankruptcy filing can affect you in multiple ways, including by making creditors less likely to grant credit or approve you for loans that will let you purchase a home or vehicle. Fortunately, there are things that can be done to increase your credit score after you complete the bankruptcy process.

Methods of Increasing Your Credit Score

Rebuilding credit after bankruptcy requires time and effort, but it can be done. The first step is to make sure all debts included in the bankruptcy have been discharged. You may want to check your credit report and make sure all information is accurate and up to date. Once this has been confirmed, the next step is to begin re-establishing credit by demonstrating financial responsibility. Some methods of doing so include:

• Pay bills on time - One of the best ways to improve your credit is to make sure all payments, such as the monthly costs of utilities or other services, are paid on time. Establishing a good payment history is essential to increasing your credit score. Creating a workable budget and sticking to it will help you better manage your finances and avoid falling back into debt. It can also help you save money for emergencies.

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Do you have significant debts that you are struggling to repay? Are you constantly dealing with calls from creditors? Are you worried about losing your home or other property? These issues affect many Americans, and debt can become unmanageable for multiple reasons, including financial factors that are out of your control, such as losing your job or suffering an illness that led to large medical bills. In these situations, it is important to remember that you are not alone, and you may be able to use our country's bankruptcy laws to receive relief from your debts. However, there are typically two options when filing for bankruptcy -- Chapter 7 and Chapter 13 -- and understanding how to choose between them is not always easy.

Weighing Your Bankruptcy Options

The primary difference between Chapter 7 and Chapter 13 bankruptcy is that Chapter 7 bankruptcy results in the liquidation of your assets, while Chapter 13 bankruptcy sets up a repayment plan for your debts. A Chapter 7 case can usually be completed fairly quickly, and it will allow multiple types of debts to be discharged after any non-exempt assets you own are seized and sold to pay off some of what you owe. A Chapter 13 case is often more complicated, and it will require you to make monthly payments for several years, although you will not be required to turn over any property.

As you determine which type of bankruptcy to pursue, you may want to consider the following:

People who are seeking relief from debt have the option to declare bankruptcy. Depending on their overall financial situation, most individuals will file either Chapter 7 or Chapter 13 bankruptcies to stop debt collection and have their debts discharged. However, there are certain types of debts that cannot be discharged through the bankruptcy process, known as non-dischargeable debts. If you are overwhelmed with debt and considering filing for bankruptcy, even if the majority of your debt appears to be non-dischargeable, an experienced attorney can help you explore your options.

Texas Bankruptcy Non-Dischargeable Debts

There are several types of non-dischargeable debts, or debts that cannot be wiped out when you file for bankruptcy. These debts include:

• Student loan debt – Student loan debt is often a source of significant debt. Loans which are government-funded or guaranteed educational loans are usually non-dischargeable. However, in cases where the debtor can show that repayment would cause them undue hardship, they may be dischargeable.

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One of the most common questions attorneys at Acker Warren, P.C. are asked by potential client’s is, what happens to my house and car in bankruptcy?

The short answer to this question is that you almost always may keep and continue to pay for you home and car. However, it depends on a multitude of factors, for instance, what state you live in, if you are current on the payments, is it your only house or vehicle, what other property do you own, etc.?

To more thoroughly understand what happens to a home or vehicle in bankruptcy an explanation as to the different types of debts, the different types of assets, and the different chapters of bankruptcy is necessary.

A Debt collector’s purpose is to recover money owed on delinquent accounts. Sometimes the Debt collector has been hired by a creditor to try to recover the delinquent debt and other times the Debt collector has purchased the debt from the original creditor. Some examples of why debt collectors may contact you are unpaid medical bills, delinquent credit card debt, delinquent phone/ utility bills, delinquent car loan payments, deficiency balances on repossessed or foreclosed property, back taxes, etc.

However, just because a Debtor is delinquent on a debt or account, this does not mean that a Creditor or Debt Collector has free reign to try to collect the debt by any means they see fit. The Fair Debt Collection Practices Act (FDCPA) is a law that sets out the parameters that a Creditor/ Debt Collector is allowed to attempt to collect on a delinquent debt. Harassment and its definitions are set out under the law. If a creditor violates the FDCPA a Debtor has the right to sue for damages created by the violations of the FDCPA.

A few actions that are NOT allowed to be undertaken to collect a debt: