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Do I Qualify for Chapter 7 Bankruptcy? Answers from an Austin Bankruptcy Lawyer

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What Is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is one of the two of the two common types of consumer bankruptcy in the United States. It's a legal process for debt relief, and it helps folks get out of overwhelming debt by eliminating the legal requirement repay the the debt that gets discharged. You'll often hear it described as a liquidation bankruptcy, but in reality most folks who file Chapter 7 get to keep all of their property. Chapter 7 bankruptcy is truly one of the fastest and cheapest ways to wipe the slate clean and get a fresh start at your financial life.


What are the Benefits of Chapter 7 Bankruptcy

A note saying "benefits"

If you're considering bankruptcy then you're probably tormenting yourself with all of the negative things that "everyone knows to be true" about bankruptcy. Notice that I'm using quotations there, because at worst that stuff is nonsense and untrue and at best it solely focuses on negative while completely ignoring the positive benefits of filing bankruptcy. Yes, there are really great benefits to filing bankruptcy. Here's a quick list of five benefits of Chapter 7 bankruptcy:


No Repayment Plan

Chapter 7 bankruptcy allows you to get rid of up to the total amount of your unsecured debt without needing to make anymore debt payments. That makes it the cheapest debt relief option available. Think about it, all it costs to get rid of all of your debt in a Chapter 7 bankruptcy is the price of your attorney fees. That's considerably less than you'll pay if you choose debt settlement, debt consolidation, or a debt management plan (click here to learn about other issues you should be aware of about each of these options)


Get Out of Debt Fast

In most Chapter 7 bankruptcies in Central Texas, the total period of time from filing to discharge is usually three to four months. There are individual circumstances that may cause some cases to take longer, but those don't come up frequently. Additionally, it may take between two to twelve weeks to prepare your bankruptcy petition and schedules to be ready to file your bankruptcy case.


Imagine being out of debt six months from now. That's the reality for the overwhelming majority of folks who file Chapter 7 bankruptcy.


Stop Creditor Harassment

Many of our clients are sick and tired of dealing with nonstop calls from debt collectors. Those calls stop when we file your bankruptcy. The moment we file your case the automatic stay goes into place and protects you against anyone who tries to collect a debt, and there can be real consequences for creditors who violate this protection.


Get Out of Debt and So You Can Plan for Your Future

A lot of folks who end up filing bankruptcy are making enough money to afford their lifestyle if they weren't in debt. As long as they keep making minimum monthly payments, they'll keep living paycheck to paycheck and they won't have any money left over to save. But as soon as they get to stop making minimum payments they get some breathing room in their budget and they have some extra money to plan for their future.


We hear a lot of our clients tell us that the final straw before finally deciding to file bankruptcy is realizing that they have the power to choose one of two futures for themselves. In one future, they don't file bankruptcy and spend the next twenty to forty years repaying their debt, only to wind up in their fifties/sixties/seventies with no savings and nothing to show for the money they spent getting out of debt. Their unable to retire and forced to continue working or struggling to make ends meet with nothing more than social security. In the other future, they file for bankruptcy and get out of debt quickly and spend the next several decades saving for their future and not living paycheck to paycheck.


Get Rid of Anxiety Caused by Stress

A wordcluster for depression, stress, and and anxiety

Anyone who's been in debt knows the awful stress that comes along with it. Maybe you're waking up in the middle of the night in a panic, wondering how you're going to afford gas in morning. Maybe the constant phone calls are increasing your anxiety and making you unable to enjoy the rest of your day. There are so many ways that debt can ruin our moods and make our days much more challenging. And probably the worst part of all is feeling trapped, like there's no way out. But there is. Most of our clients report feeling relief as soon as they make the decision to file, and from there the feeling of relief grows until they're basically feeling like a new person by the time we get to their 341 meeting (aka "meeting of creditors") about a month after we file their bankruptcy forms.


Does Chapter 7 Clear all Debt?

Chapter 7 bankruptcy typically gets rid of all of your unsecured debt, but it doesn't get rid of priority debts (like certain taxes) and secured debts like a mortgage or car loan. Understanding the specifics with an Austin bankruptcy lawyer is crucial.

Credit Card Debt, Deficiency Judgments, and Medical Debt

Most unsecured debt is eliminated by Chapter 7 bankruptcy. This includes credit card debt, medical debt, personal loans, and deficiency judgments. If you're not sure what a deficiency judgment is, it's when you lose a car or other piece of secured property to repossession or foreclosure and then you get a bill. This happens because after the creditor retakes the property, they sell it and if the price they get is less than what you owed, they're contractually entitled to ask you to pay the difference (the current amount you owed on the loan - the amount the got for selling the property = the amount of the deficiency judgment).


Other common examples of unsecured debt that we can get rid of in Chapter 7 bankruptcy are toll bills, payday loans, back rent (although if you're still at the residence where you owe rent you'll want to speak with an Austin bankruptcy lawyer because Chapter 7 may not be the best option for you).


Do I Qualify for Chapter 7 Bankruptcy?

Question marks on yellow stickies

There are three ways to qualify for Chapter 7 bankruptcy, (1) your income is at or below the median income in your state, (2) you pass the means test, or (3) the majority of your debt is non-consumer debt. Consulting an Austin Bankruptcy Lawyer can help determine your eligibility based on specific financial circumstances.


Income Requirements for Chapter 7

The easiest way to qualify for Chapter 7 is if your income is at or below the median income for your state. The US Census Bureau compiles this data and releases an updated list of the median income in each state usually three times a year. You can find this info on the U.S. Department of Justice's website (you'll have to select the correct timeframe and follow a hyperlink). If your income is below the median income in your state then you're exempt from taking the means test and you qualify to file a Chapter 7 bankruptcy.


Texas Bankruptcy Means Test

This is a misnomer because the means test isn't necessarily specific to any one state in particular.


The means test begins by calculating your monthly income, then proceeds by determining your allowable expenses (not all expenses are considered in the means test). Next it totals up your total secured debt, unsecured debt, and priority debt. Afterward the test calculates your disposable income over the next so months. Finally, the test determines if your disposable income would repay twenty-five percent of your unsecured, nonpriority debt. If your disposable income would repay at least that much then you fail the means test and need to file Chapter 13.


That sounds complicated because it is. Having an Austin bankruptcy lawyer guide you through Chapter 7 bankruptcy from start to finish can you ensure that things are done property and that you get the full benefit of your bankruptcy.


Non-Consumer Debt

The means test only applies if your debt is primarily consumer debt. This means that if the majority of your debt is non-consumer debt then you don't have to take the means test. We see this most often for folks who have debt that they've personally guaranteed from their business that's failing or already closed.


It's important to note that you may still have to file a Chapter 13 in this situation if you have "too much" disposable income left over after paying your monthly expenses. It's important to talk with an Austin bankruptcy lawyer to make sure you avoid pitfalls like this when you file bankruptcy.


Will I Lose Everything if I File Chapter 7 Bankruptcy?

You don't lose everything when you file for bankruptcy. The bankruptcy code and state and federal law provide for a number of protections (aka "exemptions") that your Austin bankruptcy lawyer will be familiar with and know how to use to protect your property from being taken by the bankruptcy trustee.


Can I Keep My Car if I File Chapter 7?

You can keep your car if you file Chapter 7 bankruptcy. Texas bankruptcy exemptions allow you to exempt up to one car per licensed driver in your household. Although there are monetary limits on how much equity you can ultimately protect, those limits are set high enough that they don't typically create any issues.


Texas Bankruptcy Exemptions

Texas is the envy of many bankruptcy lawyers in other states because our Texas bankruptcy exemptions are really quite broad. For instance, we can exempt an unlimited amount of equity in your primary residence, one car per licensed driver, up to $50,000 of personal property for an individual filer and up to $100,000 of personal property for a married couple filing together (cars are considered personal property), just to name a few. We can also typically protect your retirement accounts, jewelry, and certain livestock (this is Texas we're talking about).


While it's certainly true that we can protect a lot of property for our clients, there are times when we come across certain items we can't protect. When this happens we can discuss your options and make sure that bankruptcy still makes sense.


Will Bankruptcy Ruin Your Life?

Man deciding his path forward for the future

Absolutely not. Period. This is another one of those things that "everyone knows to be true" about bankruptcy, except it's not true.


Bankruptcy gives you a fresh start by wiping away your unsecured debt. You may be saying to yourself, "sure, maybe it does do that, but it comes at the expense of your credit."


Okay, so let's think about this. If you're filing bankruptcy it's because you have too much debt. For many folks that means they're missing payments or making late payments, and every time they do that another negative remark gets added to their credit report. Those negative remarks stay there for seven years. When they file bankruptcy they get one more negative remark (the bankruptcy), but all of the other negative remarks stop. Bankruptcy draws a line in the sand and puts all the bad stuff on one side, and then gives you the opportunity to put good stuff on the other side.


There are also many folks who file bankruptcy who aren't missing payments but they're struggling to keep up. These folks have credit utilization scores that are far too high (this makes up about a third of your credit score) and their debt-to-income ratio is out of balance (this impacts your ability to qualify for good interest rates and a mortgage). When their debt gets discharged their credit utilization drops to zero and their debt-to-income ratio rebalances.


All of the know-it-alls who tell you how awful bankruptcy will be for your future won't tell you about any of this though, because they don't know what they're talking about. All they're doing is telling you some version of some of the negative aspects of bankruptcy, like that it stays on your credit report for seven to ten years or that you won't be able to get great interest rates immediately afterward, but they're not telling you about the positive aspects of bankruptcy....because they don't know what they're talking about. Schedule a free consultation with our Austin bankruptcy lawyer if you want to find out the truth about bankruptcy and how it will impact you and your future.


Can I Buy a Home After Bankruptcy?

Yes, you can buy a home after bankruptcy. In fact, you can qualify for an FHA or VA loan two years after your bankruptcy discharge, you can qualify for a USDA loan three years after your discharge, and you can qualify for a conventional mortgage four years after your receive your discharge. I'll say it again in case I wasn't clear a minute ago, bankruptcy doesn't ruin your future. Quite the opposite, in fact.


Can I File Chapter 7 if I've Filed Bankruptcy Before?

You can file Chapter 7 bankruptcy if you've filed bankruptcy before. If you previously filed a Chapter 7 bankruptcy and received a discharge, then you must wait eight years before you can file Chapter 7 again. If you previously filed Chapter 13 bankruptcy and received a discharge, then you must wait six years before you can file Chapter 7 bankruptcy. If you filed for bankruptcy before but didn't receive a discharge then you can file again anytime, but there will be special considerations you'll need to discuss with a bankruptcy attorney before filing.


Do I Need a Lawyer to File Bankruptcy

Technically, you don't need a lawyer to file bankruptcy. But bankruptcy law is complex, and it's easy to get wrong if you don't know what you're doing. Making a mistake can lead to your case getting dismissed and may mean that you get stuck with your debt with no way out. The stakes are too high not to have a professional on your side. If your worried about the cost, remember what you're getting out of the transaction. How much debt do you have that will be discharged when you file? Think about the money you pay your attorney as being the final payment to get rid of your debt. When you think about it that way it's really quite a small cost, and again, the stakes are too high not to have an attorney looking out for your best interest.


Why Should I Talk to an Austin Bankruptcy Lawyer?

If you're considering personal bankruptcy and you're in Central Texas, from San Antonio to Waco, and out to Granite Shoals and Kerrville, you should talk to our Austin bankruptcy lawyer so that you get the peace of mind in knowing that your case is in good hands. Our team has a passion for what we do, and we love helping people find relief so that they can enjoy their life and plan for their future. We're knowledgeable in Texas bankruptcy laws, and we can assess your unique financial situation and provide strategic advice to maximize benefits and protect your rights.

Conclusion

A lot of folks wonder whether they qualify for Chapter 7 bankruptcy. This makes sense because there are a lot of really great benefits associated with Chapter 7, such as getting out of debt fast and for cheap. To qualify for Chapter 7, your income needs to be at or below the median income for your state or you need to pass the means test. Alternatively, you can file for Chapter 7 if the majority of your debt is non-consumer debt, which usually comes up for folks who have business debt that they've personally guaranteed. Filing bankruptcy is a big decision. A lot of folks talk badly about bankruptcy but they don't know what they're talking about. If you're in a situation where bankruptcy makes sense, it's often the best decision you can make. In these situations, not filing bankruptcy holds you back by keeping you trapped in debt, but filing bankruptcy eliminates your debt and allows you to move onto a better future. Give our office a call today or book your free consultation online to speak with our Austin bankruptcy lawyer about how we can help.

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