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.

  ...

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.

  ...

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:

When you file for bankruptcy under Chapter 7 or Chapter 13 it can stay on your credit report for up to 10 years. Luckily for most of our clients, the bankruptcy being reported on their credit report isn’t too damaging. Most of our clients actually see their score improve, because their debt-to-income ratio instantly improves, and because creditors are required to remove any negative reporting from the credit report. As a result, getting a car, loan, or credit card is typically not difficult.

Additionally, there are actions you can take on top of filing bankruptcy in order to hasten the process of improving your credit score. This post details some strategies to achieve that goal.

Chapter 7

You can discharge most, if not all, of your debts after filing for Chapter 7 bankruptcy. This means that a lender cannot collect a discharged debt, and you’re no longer responsible for repaying it.

Medical bills are a very common reason people file for bankruptcy. For those who cannot pay their medical bills and do not file for bankruptcy, their situation likely will worsen.

If you are unable to pay medical bills, you’ll start getting late-payment notifications, and late fees will accrue. The medical provider may sue you in the future and win a monetary judgment against you, or it could also result in wage garnishment, a bank levy, or the placing of a lien against your non-exempt property.

Medical Bankruptcy

If you can’t pay the bill and it appears that the creditor will pursue you for payment, your good credit will suffer since a collection action will appear on your credit report. If they sue you and win the case, the medical provider could garnish your bank account or pursue other collection measures. When it comes to bankruptcy, filing as soon as possible could help you get back on your feet financially faster.

You may be asking, though, how you can keep your car when filing for bankruptcy.

There are two main types of bankruptcy: Chapter 7, which involves liquidating non-exempt assets (in Texas thankfully very few assets, for most people, are non-exempt), and Chapter 13, which focuses on debt repayment. What will happen to your vehicle if you file for bankruptcy is determined by the type of bankruptcy you declare and the amount of equity you have in your car.

In case you file Chapter 7

Most of your debts are discharged, meaning your legal liability to pay the creditor/ debt has been extinguished in Chapter 7 bankruptcy. In exchange, you must surrender non-exempt property which the bankruptcy trustee will sell and use the funds to pay your unsecured creditors. In Chapter 7, the ability to keep your vehicle is determined by whether or not your equity is classified as exempt and whether or not you are behind on your car payments. (Equity = Balance of Loan – Vehicle Value) An experienced attorney can help you navigate the potential pit falls of filing for bankruptcy with a vehicle that you want to keep or surrender. It is extremely unlikely to have a non-exempt vehicle in a Chapter 7 bankruptcy.

If debt has taken over your peace of mind, you may be considering filing for bankruptcy. An experienced attorney can explain your choices and help you find a solution to collection letters and harassing phone calls from creditors. Bankruptcy can alleviate your financial stress and provide a fresh start.

If you’re considering filing for bankruptcy, you’re probably worried about losing your house, car, or other valuables. This is where the experience of Acker Warren, P.C. can help. An experienced lawyer can assess your case and come up with a solution that is beneficial for you and helps you retain your assets.

Filing for Chapter 7 and Chapter 13

When choosing how to stop foreclosure proceedings in Texas, one option is to declare bankruptcy. The automatic stay is in effect immediately upon filing of a Bankruptcy Petition. The Automatic Stay halts all collection actions against a Debtor including foreclosure. Your mortgage creditor is prohibited by the Court from moving forward with foreclosure once the case has been filed.

Over many years of practicing bankruptcy law, we have found that certain questions consistently reoccur. If you are considering filing for bankruptcy, the below questions have likely crossed your mind.

Please remember that this is broad information that may or may not apply to your unique situation. It’s critical to discuss your specific circumstances with an attorney who has the knowledge, expertise, and experience to assess your financial situation.

Below you will find the answers to frequently asked bankruptcy questions. These answers can help you decide whether to proceed with the bankruptcy procedure or look into alternative debt-relief options.

One of the most common concerns among bankruptcy filers is the potential of losing their property after filing the case. Our clients obviously rely on their vehicles to go to and from work and home. Some people file bankruptcy with their vehicle loans already in default. When it comes to preventing repossession during bankruptcy, what is the best advice?

Our goal is to inform our clients about all aspects of bankruptcy. Having the correct information helps individuals to make educated decisions while avoiding potentially harmful information. There are a lot of misunderstandings about Texas repossession law. Any property encumbered by loans, like automobiles, furniture, and appliances, may be subject to repossession by a creditor if you default on your payments. If you are late or otherwise default on your loan contract, repossession may occur without warning.

If you fall behind on payments on your car or other collateral, the first step is to contact your creditor. The creditor is not required to cooperate with you, even if it’s only a temporary problem. If they do, be careful to have any arrangement in writing, as creditors may still seize your property after accepting partial payment.

You may have heard that student loans are not dischargeable in bankruptcy. However, this is a construed and oversimplified statement. Under certain circumstances, you can get your student loans discharged, but the threshold is higher, and the process is more complicated than it is for other forms of debt.

To do so, you must demonstrate that paying the debt will cause you and your dependents undue hardship. Courts use different criteria to determine whether a borrower has shown undue hardship. Our District, the 5th Circuit uses the Brunner Test.

The student loan will get canceled if you can successfully prove undue hardship. Declaring bankruptcy also shields you from collection actions on your debts.

There is a life after bankruptcy, and it includes taxes. Since bankruptcy and tax laws are both complex, it is critical to know how filing for bankruptcy may impact previous tax debt as well as future commitments to the IRS before you file.

The Bankruptcy Code requires a debtor to file an individual tax return or request an extension, per the IRS Publication 908 Bankruptcy Tax Guide and this return MUST be provided to your case Trustee. The bankruptcy case may convert or dismiss if this does not occur.

Bankruptcy and taxes can make anyone feel uncomfortable, especially during hard times. In this article, Acker Warren P.C. will share some facts about bankruptcy and taxes so you can prepare for what to expect and hopefully reduce some stress.

The research team at Super Lawyers selects no more than 2.5 percent of the lawyers in the state to obtain this honor every year. The Texas Rising Stars list for 2021 included Arlington Based Law Firm Acker Warren P.C.

Super Lawyers is a Thomson Reuters business that recognizes distinguished lawyers from more than 70 fields of practice that have attained a high rate of peer recognition and professional success. The picks for the Rising Stars list are made by a patented multistage process that includes a statewide lawyer survey, an unbiased polling assessment of candidates, and peer reviews by practice field. As a result, a trustworthy, extensive, and varied list of outstanding attorneys develops.

About 2.5 percent of lawyers in each state are named to the Rising Stars list. To be considered for Rising Stars, an applicant must be under 40 years old and have practiced for a decade or less. Licensed and practicing attorneys are eligible to be nominated by their peers.