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Mark D. Dunn
Attorney at Law

Center Creek Plaza
629 W. Centerville Rd., Suite 212
Garland, Texas 75041

Civil/Family Law Practice in Dallas County and Collin County (Texas).

Bankruptcy (the Basics)	Do I Qualify?	How Long Does it Take?	Where is it Filed?
Do I Need a Lawyer?	How Much Will it Cost?	Chapter 7? Chapter 13?	Will It Ruin My Credit?
I Heard that Some Debts Aren't Discharged	What are "Exemptions?"	The Automatic Stay	I Heard that the Law Changed
	Can I Keep my House? Can I Keep my Car? (Reaffirmation)	When is Chapter 7 NOT a Good Idea?	I'm in the Middle of a Divorce. Can I File Bankruptcy?
The Bankruptcy Reform Act of 2005	Where Your Case is Filed	Bankruptcy and the IRS	Famous People/Entities Who Have Filed Bankruptcy

Bankruptcy — the Basics

Your bankruptcy is filed in federal court. All of the law having to do with bankruptcy is federal law (except that you can claim exemptions under STATE law). The process starts with the filing of a petition that has "schedules" attached. These "schedules," denominated "A" through "J," are a snapshot of your financial condition — assets, debts, leases, income, and living expenses. Filling out a bankruptcy questionnaire is about as much fun as doing your income tax return, and it will probably give you a headache.

I have NEVER had a client who was happy about filing. Never. Everyone who files bankruptcy feels bad about it. It's like going to the dentist: you avoid it as long as you can, and then, finally, you have to make the appointment. It becomes a "quality of life" issue.

One thing that's worth mentioning: It's important to be truthful in your bankruptcy schedules. If you're caught lying, you could go to prison.

Do I Qualify?

Do you qualify for Chapter 7 bankruptcy under the new law (which became effective October 17, 2005)?
1. If you’re a disabled veteran and you incurred the debts while you were on active duty or were “performing a homeland defense activity,” the answer is YES. Don’t worry about any of the questions below; go directly to bankruptcy court [§707(b)(3)(B)]. I’m assuming that you haven’t been abusing your credit cards recently.
2. If your household income is equal to or less than the median income in Texas (for a family the size of yours), the answer is YES. Don’t worry about any of the following questions; go directly to bankruptcy court [§707(b)(6)]. Again, I’m assuming that you haven’t been abusing your credit cards recently.
The “median income” numbers are different for a two-person family as opposed to a three-person family [etc.]. For a Texas family of four, for instance, the median family income (as of June 1, 2006) is $58,153.
3. If neither (1) nor (2) apply, we look at the “means test,” which is:
You multiply your *current monthly income by 60. Then you compare that number against the lesser of

— (1) 25% of the total of the balances of your unsecured debts [not including unpaid child support!] or (b) $6,000.00, whichever is greater [the 25% of the balances will usually be greater], OR

— (2) $10,000.00.

“Unsecured debts” are, generally, credit card balances, medical bills, and unsecured (personal) loans.

You want your "current-monthly-income-times-60" number to be LESS, that is, less than 25% of unsecured debts, $6,000.00, or $10,000.00. If it’s less, then you’re a candidate for bankruptcy. [§707(b)(2)(A)(ii)]

§707(b)(2)(B)(I) provides for exceptions, that is, “special circumstances” such as a serious medical condition or being called to active military duty that cause additional expenses — which must be itemized and sworn to.

“Current monthly income” is your earnings minus

(a) “expenses” under the National Standards, and

(b) health insurance premiums, and

(c) monthly ongoing expenses for the prevention of family violence, and

(d) support of a disabled or elderly member of the immediate family, and

(e) up to $1,500.00 per year per child for private school tuition, and

(f) monthly payments on secured debts (the car payments), but not payments toward unsecured debts (credit cards), and

(g) court-ordered child support payments.

And even if you qualify for Chapter 7, there’s a "catch-all" provision [§707(b)(3)] which states that you can still be kicked out of bankruptcy court if it is determined that, based on the "totality of the circumstances," your financial situation "demonstrates abuse."

OTHER HOOPS TO BE JUMPED THROUGH

Section 109(h) requires you to obtain credit counseling ("an individual or group briefing") at least 180 days before you file. The clerk of the bankruptcy court is required to maintain a publicly available list of non-profit budget and credit counseling agencies. This is referred to as your "ticket into" bankruptcy court.

AND — before you can get your discharge, you must “complete an instructional course concerning personal financial management” (section 727). This is referred to as your "ticket out of" bankruptcy court.

You must file with the bankruptcy court a copy of your most recent income tax return. This can be filed with the court after you’ve filed bankruptcy, but it must be filed at least seven days prior to the meeting of creditors (which usually takes place six weeks after you file bankruptcy).

Remember that if you don't qualify for a Chapter 7, you might be able to file a Chapter 13.

How Long Does it Take?

From the time you file your petition (Chapter 7) until you receive your "Discharge of Debtor" notice from the bankruptcy court is about 120 days.

The process goes like this:

1. I myself am not doing bankruptcy anymore (as of August 2006). I will be happy to refer you to a qualified lawyer. He will charge you money up front. He will decide if you're a good candidate for bankruptcy, and will start working on drafting your petition and your bankruptcy schedules.

2. After the petition and schedules are ready, they'll be mailed to you. You'll meet with the lawyer again, and you'll sign the schedules.

3. The petition will be filed.

4. About 39 days later, you'll attend a "meeting of creditors." The meeting usually lasts ten minutes, and in 95% of all cases, no creditors show up. It will either be (1) in downtown Dallas or (2) in Plano at the Plano Centre on Spring Creek Parkway.

The meeting of creditors starts a clock running — your creditors (and the bankruptcy trustee) now have 60 days in which to file adversary actions or complaints having to do with your case.

The trustee doesn't represent you or the creditors. Technically, he represents the estate itself.

5. You may start getting letters from some of your creditors that will either (a) ask you to reaffirm a debt or (b) claim that an unsecured debt is actually secured by a lien on a camera, or a computer, or furniture.

6. About 81 days after the meeting of creditors — or 120 days after the day the petition is filed — you will receive a one-page "Discharge of Debtor" notice from the Court. Your case is over. Your dischargeable debts are now discharged.

Where is it Filed?

It depends on where you live. According to 28 USC 1408, it's based on where you have lived, or where you have had your "principal business," or where your "principal assets" have been located, (a) for the previous six months or (b) for the greater portion of the previous six months.

If you live anywhere in Dallas County, for instance, your bankruptcy is filed in Dallas (the Northern District of Texas). Actually, it's filed electronically; as of 2003, they no longer accept paper filings in Dallas. The physical address where you'll go for the "meeting of creditors" is the Earle Cabell Federal Building (1100 Commerce) in downtown Dallas.

If you live in Collin County or Denton County, your clerk's office is in the Wells Fargo building in Plano. As of 2004, this district (the Eastern District of Texas) also has mandatory electronic filing.

Do I Need a Lawyer?

There's no law that says you have to have a lawyer when you file bankruptcy (unless it's a Chapter 11 "business reorganization" bankruptcy). There are books and websites available. But if you don't have any legal experience, dealing with the Courts can be frustrating.

There are risks involved in "representing yourself." The people who work at the courthouse are helpful folks, but they aren't allowed to give you legal advice. If you don't do your paperwork right, your case could be kicked out. In everything you do, the rules apply to you exactly as if you were a lawyer. The system won't cut you any slack.

I have a deal with my auto mechanic: I don't work on my own car, and he doesn't do his own bankruptcies. I spend a lot of money on my car, but it runs like it's supposed to. You should hire a lawyer to do your bankruptcy.

How Much Will It Cost (if I hire a lawyer)?

Plan to spend $2,000.00 plus the filing fee ($295.00) for a Chapter 7.

Chapter 7 or Chapter 13?

For many people, Chapter 7 makes more sense than a Chapter 13.

Chapter 13 bankruptcy is a bill consolidation scheme that involves making payments each month (to the bankruptcy trustee) over a period of three to five years. If you don't make the payments on time each month, the trustee will recommend dismissal of your Chapter 13 bankruptcy (currently, 2 out of every 3 Chapter 13 cases end up being dismissed because the debtor doesn't make the monthly payments). And ... the amount of your monthly payment is based on your earnings vs. your monthly living expenses. You're required to pay every penny, over and above your bare minimum living expenses, to the bankruptcy trustee; this means that there will be no "fat" in your personal budget (for instance, if your car needs new tires). Most people find this pretty hard to live with. Chapter 13 isn't concerned about exemptions; you get to keep all your property, no matter what it is. You have to be employed, or have a steady source of income, to file Chapter 13; there's no such requirement for Chapter 7. Your unsecured debts must be $306,675.00 or less, and your secured debts must be $922,975.00 or less [11 USC 109(e)]. Chapter 13 is perfect for the situation where you owe large amounts to the IRS, because you can't be charged interest and penalties during the pendency of the "plan" (3-5 years).

That's Chapter 13. Let's talk about Chapter 7.

About 80% of all bankruptcies last year (2005) were filed under Chapter 7.

Chapter 7 bankruptcy is often referred to as "straight liquidation" even though in 99.99% of all cases, no property is actually liquidated. This means that whatever property you now have (your home, furniture, appliances, personal belongings) will be the same property that you have at the end of your bankruptcy. You get to keep ALL of it. And you don't have to send ANY money to the trustee.

Chapter 7, from start to finish (that is, from the filing of the petition until the discharge order), takes about 120 days.

There is no limit on the amount of your debt, secured or unsecured.

Taxes, student loans, back child support, and criminal fines are (with a very few exceptions) NOT dischargeable. Chapter 7 won't help with them. You CAN file Chapter 7 if you have a student loan; it just won't discharge that particular debt.

Secured debts — the house payment and the car payments — can be "reaffirmed." This means that you keep making the payments as usual, and when the last payment is made (five or ten years from now), you get a clear title, just as if the bankruptcy had never taken place. The "reaffirmation agreement" that you make with the creditor says that the debt will not be affected by the bankruptcy — it will "survive" your bankruptcy.

If you don't want to keep the car (or your house), you simply let the creditor have it back. The "repossession deficiency" (it seems that you always owe more than the collateral is worth) is an ordinary unsecured debt, and it gets discharged. It's gone forever.

Unsecured debts — credit cards, unsecured bank loans, and medical bills — are completely wiped out.

In Chapter 7, the only time you'll ever have "problems" with credit card debts is (1) if you obtained the credit by fraud or (2) if you bought $500.00 or more worth of "luxury items" with the credit card — cameras, computers, jewelry — less than 90 days prior to filing bankruptcy.

Will it Ruin my Credit?

Yes and no. For the next ten years, your credit report will show that you have filed bankruptcy. However, your ability to obtain new credit is between you and the potential lender. Lately, people are finding that they are able to get new credit relatively soon after a bankruptcy discharge (especially low-limit credit cards and automobile financing).

The reason for this is very simple: Many, many Americans in the past five years have had to file bankruptcy, and they represented an untapped market for creditors. It became more and more difficult for banks and credit card companies, who operate on the profit motive, to turn their backs on the 1.5 million Americans who file bankruptcy each year. These people may have gone bankrupt, but they continued to be consumers ... and potential customers.

One way to think of it is this: By the time you were ready to file bankruptcy, your credit was probably "ruined" anyway.

As time goes on, and there are more and more years between you and your discharge, creditors are more likely to extend credit. "Oh, you filed bankruptcy six years ago? How have you been doing since then? How long have you had your present job?" The potential creditor may be more interested in the "current" information than in an old bankruptcy case.

I Heard That Some Debts Aren't Discharged

1. Generally, IRS debt is not discharged in a Chapter 7. Even in cases where it is discharged, if the IRS has filed a lien against your home, the LIEN survives the bankruptcy! It's a no-win situation. If your main concern is back taxes, you should (probably) file Chapter 13 ... which stops penalties and interest from accruing during the 3-5 year life of the "plan."

Forgive me for engaging in legalese, but here's the basic rule for having your back income taxes discharged in a Chapter 7:

If you owe income tax for a tax year for which the return came due more than three years prior to the date on which you filed your Chapter 7 petition (taking into account any extensions that you filed) AND you did in fact FILE a return AND the return was not fraudulent ... then the tax debt for that year will be discharged. An exception is where the tax wasn't actually ASSESSED until after the tax year to which it is attributed.

2. Student loans are basically non-dischargeable debts. The Bankruptcy Code [11 USC §523(a)(8)] says that student loans are not discharged "unless excepting such debt from discharge ... will impose an undue hardship on the debtor or the debtor's dependents." [emphasis added]. I receive many inquiries from people wondering if their situation qualifies for the "hardship" exception.

I've studied the cases having to do with "hardship" situations that DID qualify. One such case [In re Barron, 264 B.R. 833 (Eastern District of Texas - 2001)] involved a woman whose husband had Alzheimer's Disease; his condition slowly deteriorated, and he died. She then married a man who was physically abusive; he gambled away their money. When she divorced him, all she took out of the marriage was her personal belongings. At the time she filed bankruptcy, she had severe medical problems. The Court's ruling was that her student loan debt should be reduced by about 60% — in other words, HER situation, sad as it was, wasn't enough of a "hardship" to earn her a complete discharge of her student loans.

3. Any debt that you obtained by fraud is not discharged (for instance, if you lied on the credit application).

4. A money judgment (in a civil suit) based on a DWI is not discharged (that is, you were driving drunk, caused a wreck, got sued, and now have a judgment against you).

5. Child support and alimony are not discharged.

6. If you have a judgment against you, and the judgment includes a finding that you acted intentionally (rather than negligently), that judgment isn't discharged. An ordinary judgment (based on a debt, or based on negligence) IS discharged by bankruptcy [11 USC 524(a)(1)].

What are "Exemptions?"

In theory, when you file Chapter 7 bankruptcy, all of your property becomes part of your "bankrupt estate" and is subject to liquidation by the trustee — that is, he would sell it, and use the proceeds to pay your creditors a few pennies on the dollar. You would be left standing in your driveway, empty-handed, with a forlorn look on your face.

In actual practice, you get to claim some (usually ALL) of your property as EXEMPT — that is, it does NOT become part of the estate — and in Texas, 99.999% of debtors are able to claim ALL of their property as being exempt ("exempt" means that you get to keep it). Rich people, poor people, people who have a lot of property — can claim everything they own as exempt. This is because the Texas STATE law on exemptions (Chapters 41 and 42 of the Texas Property Code) is very liberal. Yes, federal (bankruptcy) law specifically allows Texans to claim State-law exemptions.

Exempt property, per Texas (State) law, is

- your homestead, or the equity in your hoome;

- home furnishings (furniture, appliancesss, stereos, TV's, computers);

- tools of a trade;

- clothing;

- jewelry;

- only two firearms (sorry!);

- athletic and sporting equipment;

- one car (or motorcycle) per family membeer;

- your IRA, 401k, and retirement plans;

- two horses, mules, or donkeys, and a sadddle, blanket, and bridle for each; 12 head of cattle; 60 head of other types of livestock; 120 fowl, and household pets (it says so, right there in Chapter 42 of the Texas Property Code).

Because the definition of "exempt property" is so extensive and all-encompassing, most people don't have to give up ANY property when they file Chapter 7.

For most people, the only property that they might have to "worry" about (that might be non-exempt) is:

- non-homestead real estate ... the one-accre lake lot in Rockwall.

- money in a checking account or savings acccount (more than, say, $150.00).

- any portion of a 401k fund that represennts contributions that you made over and above the amount allowed by federal law.

Remember that if you're currently making payments on a car or a boat, it technically doesn't belong to you yet, but the exemption still applies to the equity that you have in the collateral.

In several cases that I've been involved in where there was non-exempt property (such as a coin collection), the trustee just didn't want to bother with it — he didn't think it would be worth his time to liquidate it and distribute the proceeds — so he just let the debtor keep the property. The legal term for this is "abandoning the property back to the debtor" (11 USC §554).

And if the State-law exemptions (Chapters 41 and 42 of the Texas Property Code) don't work quite right for your situation, you have the option of using the Federal exemptions (11 USC §522).

The Automatic Stay

When you file bankruptcy, an "automatic stay" (11 USC §362) goes into effect. It's as if a federal judge, wearing his black robes, is standing there when your petition is filed, and at that exact moment he signs an order directed to the entire world which says: "You are hereby ordered to stop harassing Joe Smith about his debts. You are not allowed to try to collect over the phone; you may not repossess anything; you may not foreclose; you may not offset out of his bank accounts; if you have sued him, you must stop all activity on the lawsuit immediately."

As you may know, "foreclosure day" for real estate (non-judicial foreclosure under a deed of trust) in Texas is the first Tuesday of each month; in each calendar year, there are only 12 days when one may foreclose a regular residential mortgage. Because of this, the heaviest "filing day" for bankruptcies is the Monday before the first Tuesday of each month. In fact, in Dallas, the clerk's office used to stay open late on that Monday to accommodate all the last-minute filings from people who wanted to stop a Tuesday foreclosure (back before we had electronic filing).

Can I Keep my House? Can I Keep my Car? ["Reaffirmation"]

Yes. IF you're current on the payments, and IF you have a good payment history (that is, there's not a history of you getting behind and then catching up), the creditor will almost always reaffirm a secured debt. This doesn't work with credit cards. A reaffirmation is simply an agreement that you make with a secured creditor that says: "We're going to pretend that this bankruptcy never happened. This particular debt won't be discharged, even if all the other debts are. After the bankruptcy, you [creditor] will still have all your legal rights, and I'll get to keep driving my car [or living in my house]." Years later, when the debt is paid off, you'll receive a clear title.

When is Chapter 7 NOT a Good Idea?

Chapter 7 bankruptcy may not be right for you because (1) you don't qualify or (2) Chapter 7 won't take you where you want to go.

1. If you're several payments behind on your house (or car), and you want to keep it, then Chapter 7 isn't the way to go. You need Chapter 13.

2. If your biggest problem is IRS debt, then Chapter 7 won't do you any good (unless the IRS debt is referrable to tax years that are four or more years in the past). You need Chapter 13.

3. If you have substantial "non-exempt assets" such as real estate that isn't homestead, or a large savings account, or "extra" cars, then Chapter 7 wouldn't be a good idea. The Chapter 7 trustee would have a duty to seize your non-exempt assets, sell them, and give the money to your creditors (even if it would result in them getting only pennies on the dollar).

4. If a comparison of your income (Schedule I) and your monthly living expenses (Schedule J) shows that you have more than $100.00 "discretionary income" at the end of the month, then you can't file Chapter 7.

5. If you charged more than $500.00 on credit cards for "luxury goods" within the past 90 days.

I'm in the Middle of a Divorce. Can I File Bankruptcy?

Yes. There are a couple of things to consider:

1. It could delay the finalization of your divorce, because a State Court Judge isn't supposed to make a final ruling in a divorce case while your bankruptcy case is pending in Federal Court (although it has happened before). If you DON'T want to delay the final hearing in your divorce, you'll have to file a Motion to Lift Stay.

2. You have to list your future ex-spouse's information (property and income) in your bankruptcy schedules, even though he isn't filing bankruptcy with you. The reason for this is that, under community property laws, half of "his" 401k (etc.) is owned by you, and you have to list ALL of your property in the schedules.

Famous People/Entities Who Have Filed Bankruptcy

You may feel a little bit guilty when you consider bankruptcy. Here's a list of some famous people (and companies) who filed bankruptcy:

P.T. Barnum — He filed bankruptcy at the age of 45.

Dorothy Dandridge — She was 39 years old when she filed.

The Roman Catholic Archdiocese of Portland, Oregon — in July 2004.

Walt Disney — At age 22, he realized that his "Laugh-O-Gram Corp." in Kansas City, Missouri was a failure, and he filed bankruptcy.

Mike Tyson — he filed in August 2003.

Eddie Fisher (singer - father of Carrie Fisher) — At the age of 42, his debts totaled just over $1 million. He filed bankruptcy.

Isaac Hayes (won an Oscar in 1971 for "Theme from Shaft") — he filed in 1976.

Mickey Rooney — he filed in 1962.

Mark Twain — he filed in 1894.

James Whistler (American painter) — he filed in 1879.

L. Frank Baum — in 1891, nine years before he wrote The Wonderful Wizard of Oz, he filed bankruptcy.

M.C. Hammer — he filed in 1997.

Donald Trump — he filed in 1992.

Montgomery Ward — in December 2000.

John Connally (former governor of Texas) — he filed in 1987.

K-Mart — in January 2002.

Kim Basinger — she filed in 1992, just after she was hit with a $9 million judgment in a civil case.

KayBee Toys — they filed in January 2004.

Ameridebt — they filed in June 2004.

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Disclaimer (the fine print)
The information on this website is not legal advice, and it may not be applicable to any specific set of facts ... especially your own personal situation. The perusal of this website does not establish an attorney-client relationship. You should consult an attorney for advice regarding your individual situation, and I invite you to contact me; I welcome your calls and emails. Contacting me does not create an attorney-client relationship. Please do not send any confidential information to me. I am an attorney licensed by the Supreme Court of Texas to practice law in all State courts and certain Federal courts, but I'm not board certified by the Texas Board of Legal Specialization.