Texas Bankruptcy Laws
The United States Bankruptcy Code is designed and intended to provide a lifeline to individuals and businesses struggling with insurmountable debt. Filing for bankruptcy makes its possible to legally eliminate, restructure, or repay your debts under the protection of the bankruptcy court.
The Bankruptcy Code provides various forms of relief, including liquidation under Chapter 7 and reorganization under Chapter 13. Texas Bankruptcy Attorney Howard Tagg can help you determine if bankruptcy is right for you, and if so, which chapter will be most effective in relieving your debt. In the meantime, the legal team at the Law Office of Howard Tagg has compiled an overview of what you can expect in the Texas bankruptcy process.
Texas Bankruptcy Courts
All bankruptcy cases are handled in federal courts and governed by the Federal Rules of Bankruptcy Procedure as well as local rules of each bankruptcy court. In Texas, there is a bankruptcy court for each of the four judicial districts — Eastern, Western, Southern, Northern.
Bankruptcy filers in Tyler, TX will have their case heard in the Tyler Division of the Eastern District of Texas Bankruptcy Court. A bankruptcy judge will decide matters such as your eligibility to file or whether you should receive a discharge of your debts, however most of the bankruptcy process is administrative and takes place outside of the courtroom.
Eastern District of Texas Bankruptcy Court Main Office
110 North College Avenue
Tyler, TX 75702-7226
Joseph D. Tokoph
U.S. Bankruptcy Court
211 W. Ferguson St. 4th Floor
Tyler, TX 75702
Hon. Bill G. Parker
U.S. Bankruptcy Court
200 E. Ferguson St.
Tyler, TX 75702
Mandatory Pre-Bankruptcy Credit Counseling
Six months before filing for bankruptcy, you will need to take a credit counseling course from a counseling agency approved by the US Trustee’s Office for the Eastern District of Texas Bankruptcy Court. This is usually a 45-90 minute session that can be completed via telephone, in person, or online. We recommend that you do not complete the counseling course without first talking to our law office.
* credit counseling may be waived for those who are disabled, physically incapacitated, or who may be active duty military in the middle of a war zone
Chapter 7 Bankruptcy in Texas
A Chapter 7 Bankruptcy is referred to as a “straight” “liquidation” or “fresh start” bankruptcy. It enables you to eliminate or discharge most or all of your unsecured debt including credit card debt, medical bills, utility bills, personal loans, finance company loans, certain income taxes over three years old, auto loan repossession deficiencies, etc. Once your debts are discharged you are released from any personal liability. It’s important to note that certain debts cannot be discharged including alimony, child support, student loans, and certain taxes.
Chapter 7 requires you to turn over your non-exempt property to a court trustee who then sells these assets and uses the proceeds to repay your creditors. However, in most cases, you will be able to keep your property because it will most likely qualify for exemption under state or federal law.
Chapter 13 Bankruptcy in Texas
Chapter 13 bankruptcy is the optimal choice for those who have a regular source of income but need time to “catch up” with past due payments. Candidates for Chapter 13 often have..
- secured creditors threatening to take property away like a house, car, appliances
- income too high to qualify for Chapter 7
- a lot of non-exempt assets
Chapter 13 allows you to consolidate your debts into one monthly affordable payment to repay creditors over an extended period of time – usually three to five years.
Filing for Bankruptcy
Texas bankruptcy attorney Howard Tagg will formally commence the bankruptcy process by filing all the necessary paperwork with the Office of the Bankruptcy Clerk in the Tyler Division of the Eastern District of Texas. Pertinent documents include:
- Petition – your name, social security number, chapter under which you are seeking bankruptcy
- Property list – itemized list of all the property you own and an estimated market value for each item
- Creditor list – names of all creditors categorized by unsecured, secured, and priority debt
- Budget – current monthly income and expenses
- Statement of financial affairs – list of 25 questions inquiring about your financial transactions over the past several years
- Pay Stubs
- Means Test
At the moment you file for bankruptcy, an “automatic stay” goes into effect that prohibits creditors from taking any action against you to collect debts. Here are just some of the ways an automatic stay can help you breathe a sigh of relief
- stops harassing phone calls and threatening letters from creditors
- prevents your utilities from being disconnected (telephone, gas, electric or water service)
- stops foreclosure proceedings
- stalls an eviction proceeding
- prevents collection of overpayments of public benefits
- stops wage garnishments
Mandatory Post-Filing Debtor Education Course
After you file for bankruptcy, you will need to complete another debtor education or financial management course approved by the US Trustee’s Office. In a Chapter 7, you must complete this course around 3 months after you file for bankruptcy. In a Chapter 13, you must complete the course before the end of your repayment plan.
In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act was amended to include the application of a means test before filing for bankruptcy. A means test is used to assess if you have the financial means to pay back your debt and determine whether you qualify for a Chapter 7 or Chapter 13 bankruptcy.
The means test compares your average household income over the last six months (subtracting certain expenses such as food and rent) to the median income of a family of your size in Texas.
Texas Median Household Income
- $46,709 for a one-person household
- $61,704 for a two-person household
- $65,713 for a three-person household
- $76,842 for a four-person household
If your household income is below the median income threshold of a family of your size, you would qualify for Chapter 7. If your income exceeds the threshold, you would need to seek relief under Chapter 13. However, Texas bankruptcy lawyer Howard Tagg may be able to help you apply for deductions available to you
Bankruptcy is a system of federal law applied uniformly across the country to ensure consistency in bankruptcy proceedings. Individual states, do however, retain jurisdiction over certain debtor-creditor issues such as setting property exemptions to determine which property you can keep (in a Chapter 7 bankruptcy) and how much you have to repay your creditors (in a Chapter 13 bankruptcy).
When you file for bankruptcy in Texas, you can choose to use either the exemptions listed under Texas state laws or the federal exemptions listed in the Bankruptcy Code but you cannot mix and match. Texas bankruptcy attorney Howard Tagg will help you determine which exemptions are most favorable to you and your situation. His top priority will be to safeguard what is important to you by filing for the maximum amount of exemptions while still making sure to discharge the maximum amount of debt.
What Property is Exempt in a Chapter 7 Bankruptcy?
- Your house – no value or equity limit
- One vehicle up to a certain value
- Household furnishings and appliances up to a certain value
- Clothing up to a certain value
- Jewelry up to a certain value
It’s important to note that even if equity is protected in your home or car you still must be able to continue to make payments on the mortgage or car loan. The same is true if there is a lien against property, the creditor holding the lien still needs to be paid.
What Property is NOT Exempt in a Chapter 7 Bankruptcy?
These are items that you will most likely have to surrender if you file for Chapter 7.
- A second vehicle
- A second home
- Personal collections, like coins or stamps
- Family heirlooms
- Bank accounts, stocks, and bonds
Texas Exemptions vs. Federal Exemptions
Texas is considered to be the most “debtor-friendly” state in the nation and has generous exemption laws to help you keep your home, property, and retirement accounts. The federal exemptions allow for a ‘wild card’ that can be used to protect property that does not fall under any other exemption categories.
Under the Texas state exemption system, 100% of the equity in your home is protected. This is called the homestead exemption and is found in Chapter 41 of the Texas Property Code 41.001 – 41.024. Your homestead applies to any real estate that functions as your primary residence such as a home or condominium. The only limits are based on acreage.
If your home is located in a city, town or village, your property cannot exceed 10 acres. For urban homesteads located in a city, town, or village, the property cannot exceed ten acres. For rural homesteads, the property cannot exceed 100 acres except if you are a family in which case it cannot exceed 200 acres. If property acerage is larger than what is covered by homestead exemption, Texas bankruptcy lawyer Howard Tagg can file a homestead declaration.
Under the federal bankruptcy exemption system, you can currently protect $23,675 of equity in your principal place of residence. If you are a married couple filing for joint bankruptcy it is $47,350.
Personal Property Exemption (clothing, furnishings, household goods, appliances, up to two firearms, animals, limited jewelry, and more)
The amount of personal property that can be claimed as exempt in Texas is $100,000 for a family and $50,000 for a single adult.
Federal exemptions for property include:
- household goods – $12,625 ($600 maximum for each individual item)
- jewelry – up to $1,600
- $2,375 for professional books, implements, or tools of trade
The Texas motor vehicle exemption allows you to protect the entire value of one motor vehicle per household. The federal exemption for a vehicle is $3,775.
Monies allocated for retirement in qualified accounts such as 401(k), 403(b)s, profit sharing plans, and some social security benefits are fully exempt when you use Texas state exemptions. IRAs and Roth IRAs are capped at $1,283,025.
Attend Creditors Meeting
A month after you file for bankruptcy, the bankruptcy trustee will schedule a meeting with you and your creditors known as a “341 Meeting.” At this meeting, your trustee will ask you questions under oath as to the accuracy of your filed petition. In most cases, your creditors will not even attend. 341 Meetings are usually quick and painless and nothing to be feared.
Meet Texas Bankruptcy Lawyer Howard Tagg:
If you are interested in learning more about how bankruptcy might be able to solve your financial worries, call my office to schedule a free consultation: 903-581-9961