Texas Bankruptcy Practice Areas and Legal Definitions

Texas New Bankruptcy Laws

Bankruptcy is a federal court process designed to help individuals and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcies can generally be described as liquidation or reorganization. Under a liquidation bankruptcy (Chapter 7), a claimant files to eliminate debt through the bankruptcy court. Under a reorganization bankruptcy (Chapters 13), a claimant files a plan with the bankruptcy court proposing how to repay creditors.

As of October 17, 2005, the requirements in which a debtor may file Chapter 7 bankruptcy have changed under the Bankruptcy Abuse Prevention and Consumer Protection Act. Debtors are required to seek budget and credit counseling six months prior to filing, financial "testing" is required to determine the debtor's capacity for debt repayment, Chapter 7 cannot be filed if the household income is greater than the median household income as deemed by the state, and state exemptions cannot be applied unless the debtor has resided at current residence for over two years.

Due to the imposed requirements for Chapter 7 bankruptcy as set forth by the new laws, debtors who are presently eligible to file under Chapter 7 will have to file under Chapter 13 bankruptcy instead, in which individuals and creditors agree to a court-imposed plan that requires some or all debts be repaid over five years, with an appointed trustee assigned to monitor the repayment process. Bankruptcy filings will continue to be recorded on an individual's credit report for seven years in the case of Chapter 13, and up to ten years for Chapter 7. For additional information related to New Bankruptcy Laws, contact Houston, Texas bankruptcy Attorney James Patrick Brady.

Chapter 7:

Chapter 7 cases are commonly referred to as straight bankruptcy or liquidation cases, and may be filed by an individual, corporation, or a partnership. Under chapter 7, the debtor is allowed to claim certain property exempt. In exchange for this, the debtor gets a discharge, which means that the debtor does not have to pay certain types of debts.

Chapter 13:

Chapter 13 permits individuals to keep their property by repaying creditors out of their future income. It is not available to corporations or partnerships. Each chapter 13 debtor proposes a repayment plan that must be approved by the court. After completion of payments under the plan, chapter 13 debtors receive a discharge of most debts.

Chapter 11:

Chapter 11 is the reorganization chapter available to businesses and individuals who have substantial assets and/or income to restructure and repay their debts. Chapter 11 allows flexibility in structuring the reorganization, and there is no debt limit under Chapter 11. However, only a chapter 11 debtor that qualifies as a small business may request expedited treatment under chapter 11. To qualify as a small business, the debtor must be engaged in commercial or business activities, other than the ownership of real property, and the total of its secured plus unsecured debts must be less than $200,000. Due to the expense and complexity of chapter 11, the decision to file a chapter 11 petition should be made in consultation with an attorney. In addition to the filing fee paid to the Clerk, a quarterly fee must be paid to the U.S. Trustee in all chapter 11 cases.