Chapter 13 Bankruptcies are one of several options available to individuals and families in Texas seeking relief from crushing or unsurmountable debt. While Chapter 7 is the more extreme option, Chapter 13 offers a more nuanced approach, allowing you to keep virtually all of your assets and favoring restructuring and repaying rather than discharging most of your debt. This article dives into some of the gritty, but important details of Chapter 13 Bankruptcy in Texas, including:
- Who can qualify for Chapter 13 bankruptcy and how much it might cost you in Texas.
- The process and procedures for Chapter 13 bankruptcy including how to protect your assets.
- What happens if you default on your Chapter 13 bankruptcy repayment plan.
Often the first and most important question Texans will want an answer to is: do I qualify? Unlike chapter 7, there is no means test to qualify, but it is possible not to be eligible for the process.
Could I Have Too Much Debt To Qualify For A Chapter 13 Bankruptcy?
Unlike Chapter 7 Bankruptcy, Chapter 13 has debt limitations, both for unsecured debt and secured debt.
There’s a limitation for how much debt you can have in either category since you will need to repay at least some of it in the end. If you have debts that surpass those limits, you would not qualify for Chapter 13.
What Is The Process Of A Chapter 13 Bankruptcy Like In Texas?
Unlike Chapter 7 bankruptcy, which is focused on debt forgiveness or discharge, Chapter 13 bankruptcy is a debt repayment proceeding where all of your debts are consolidated.
An individual who files Chapter 13 will file a Chapter 13 plan of reorganization, usually worked on with a lawyer ahead of time. That plan proposes how they will pay their debts out of their future disposable income over the next three to five years. If there is not enough income, some debts may be decreased or partially discharged.
If the plan is accepted, over the next three to five years the payments are made to a trustee appointed by the court and then the trustee disperses the money to the creditors.
How Can I Afford To Pay For A Chapter 13 Bankruptcy Attorney?
Given the financial precarity that most people are already in when seeking bankruptcy relief, it is natural to worry about the cost. Especially when a qualified attorney can make all the difference in getting a case accepted and approved.
In most cases, only a small amount of the attorney’s fees for Chapter 13 are paid upfront. The balance is added to the payment plan. Out of the money that the debtor pays the trustee each month, the trustee will pay a portion to your bankruptcy attorney.
Are There Exemptions In A Chapter 13 Bankruptcy That Could Qualify To Protect My Assets?
Yes, the advantage of Chapter 13 bankruptcy compared to Chapter 7 is often in the amount of protection offered for your assets.
In Texas, there are two sets of exemptions that the debtor can choose from in Chapter 13 bankruptcies. One is the Texas exemptions list and the other is the Federal exemptions list. You have the option of picking which exemption scheme will best protect your assets.
Though understanding how they work can be complicated, and is one of the main reasons to seek out a qualified attorney.
Can I Protect My Retirement Account In Chapter 13 Bankruptcy?
Texans are rightly concerned about their future, especially after the disruption of bankruptcy, and so many ask about their retirement plans or accounts when considering bankruptcy.
Most retirement accounts are exempt during Chapter 13 bankruptcy under both the Texas exemptions and the federal exemptions schemes. Usually, as long as the retirement account is qualified as such by the Internal Revenues Service, then it’s also going to be exempt in Chapter 13.
What Happens If I Default On My Chapter 13 Repayment Plan?
Remember, the goal of a Chapter 13 bankruptcy is not to have most of the debts erased but to reorganize them and propose a payment plan.
If there is a default in that payment plan, the trustee may have to move to dismiss the case. If the default is not fixed, in some cases the Chapter 13 case will be dismissed.
There will often be one last opportunity for you to propose some type of cure to bring your Chapter 13 plan payments back on track, but if you fail that, it’s back to square zero.
The key to not failing on your plan is to build a smart and manageable plan from the start, something your attorney would be happy to guide you through the process of. For more information on FAQs In Chapter 13 Bankruptcy In Texas, an initial consultation is your next best step.