An Alternative Option To Bankruptcy in Texas

As of September 2021, the total outstanding debt of the State of Texas was approximately $46.5 billion. This includes both general obligation debt and revenue debt. The general obligation debt of Texas was about $24.2 billion, while the revenue debt was approximately $22.3 billion. The revenue debt is backed by specific revenue streams, while the general obligation debt is backed by the state’s full faith and credit. In addition to the state debt, local governments in Texas also have significant debt. As of August 2021, the total local government debt in Texas was approximately $352.9 billion. This includes debt issued by cities, counties, school districts, and other local government entities. As of 2021, Texas has a relatively low bankruptcy rate compared to other states in the U.S. According to the American Bankruptcy Institute, Texas ranked 40th in the nation for bankruptcy filings per capita in 2020. In 2020, there were 32,031 bankruptcy filings in Texas, representing a 19% decrease from the previous year. Of those filings, approximately 70% were filed under Chapter 7 of the U.S. Bankruptcy Code, which is the most common form of bankruptcy.

Bankruptcy Laws in Texas

Bankruptcy laws in Texas are governed by both federal and state law. The primary federal law governing bankruptcy is the U.S. Bankruptcy Code, which provides individuals and businesses with relief from their debts and a fresh start financially. Texas has opted out of the federal bankruptcy exemptions provided under the Bankruptcy Code and instead allows debtors to use the state exemptions. These exemptions allow debtors to protect certain assets from seizure and sale by the bankruptcy trustee. Under Texas law, debtors may exempt homestead property, personal property, retirement accounts, life insurance policies, and other assets from the bankruptcy estate. However, there are limits on the amount of exemptions that may be claimed, and some assets may not be fully protected. In addition, Texas has certain unique rules regarding bankruptcy, such as the ability to exempt an unlimited amount of equity in a primary residence. Texas also has a relatively short statute of limitations for debt collection, which may impact the timing of bankruptcy filings.

What Types of Bankruptcy Are There for Individuals?

There are two main types of bankruptcy for individuals in the United States: Chapter 7 and Chapter 13. Both types of bankruptcy offer relief from debts, but they differ in their eligibility requirements, the assets that can be retained, and the process for resolving debts.

• Chapter 7 bankruptcy: This is also known as “liquidation bankruptcy” and is designed for individuals with limited income and assets. In Chapter 7 bankruptcy, a court-appointed trustee liquidates non-exempt assets to pay off creditors. Most unsecured debts, such as credit card debt, medical bills, and personal loans, are discharged or eliminated entirely. However, some types of debts, such as student loans, taxes, and child support, cannot be discharged in bankruptcy.
• Chapter 13 bankruptcy: This is also known as a “reorganization bankruptcy” and is designed for individuals with a regular income and assets that they wish to retain. In Chapter 13 bankruptcy, the debtor enters into a repayment plan that lasts three to five years, during which time they make regular payments to their creditors. At the end of the repayment plan, any remaining eligible debts are discharged. Unlike Chapter 7, some types of debts that cannot be discharged in Chapter 7 may be eligible for discharge under Chapter 13.

What Types of Bankruptcy Are There For Businesses?

In the United States, there are several types of bankruptcy available for businesses facing financial distress. The most common types of business bankruptcy are:

• Chapter 7 bankruptcy: This is also known as “liquidation bankruptcy” and is designed for businesses that are unable to continue operating. In Chapter 7 bankruptcy, a court-appointed trustee sells the business’s assets to pay off creditors, and the business ceases operations.
• Chapter 11 bankruptcy: This is also known as “reorganization bankruptcy” and is designed for businesses that want to continue operating but need to restructure their debts and operations to become financially viable. In Chapter 11 bankruptcy, the business proposes a plan to reorganize its debts and operations, which is subject to court approval. The business continues operating while under bankruptcy protection.
• Chapter 12 bankruptcy: This is specifically designed for family farmers and fishermen who have regular income and want to reorganize their debts. Similar to Chapter 11 bankruptcy, the debtor proposes a plan to reorganize their debts and operations, which is subject to court approval.
• Chapter 13 bankruptcy: While primarily designed for individuals, some small business owners may be eligible for Chapter 13 bankruptcy if they meet certain criteria. Under Chapter 13 bankruptcy, the debtor proposes a plan to repay their debts over a period of three to five years.

Learn More about the 3 main types of bankruptcy

Things to Keep in Mind When Considering Business Bankruptcy in Texas

If you are considering filing for business bankruptcy in Texas, there are several important things to keep in mind. Here are some key considerations:

• Type of Bankruptcy: There are two main types of bankruptcy for businesses: Chapter 7 and Chapter 11. Chapter 7 is a liquidation bankruptcy that involves selling off assets to pay creditors, while Chapter 11 is a reorganization bankruptcy that allows the business to restructure its debts and operations to continue operating.
• Eligibility: In order to file for bankruptcy, your business must meet certain eligibility requirements, including having a certain amount of debt and being unable to pay debts as they come due.
• Automatic Stay: When you file for bankruptcy, an automatic stay goes into effect, which stops most collection actions by creditors, including lawsuits and wage garnishments.
• Impact on Creditors: Filing for bankruptcy can have a significant impact on your business’s creditors, and it is important to understand how it may affect their ability to collect on debts.
• Potential Asset Loss: Depending on the type of bankruptcy you file, you may be required to sell off assets to pay back creditors. This can include business assets, real estate, and even personal property.
• Professional Help: It is highly recommended that you work with an experienced bankruptcy attorney who can help guide you through the process and ensure that you are taking the appropriate steps to protect your business’s interests.
• Future Business Operations: Filing for bankruptcy can have a long-lasting impact on your business, and it is important to consider how it may affect your ability to obtain credit or continue operating in the future.

What Debts Are Not Discharged in Bankruptcy?

While bankruptcy provides a fresh start for those who are struggling with debt, not all types of debt can be discharged, or eliminated, through bankruptcy. Here are some common types of debts that are generally not discharged in bankruptcy:

• Certain tax debts: While some tax debts may be discharged in bankruptcy, others, such as recent income taxes, payroll taxes, and fraud-related tax debts, are generally non-dischargeable.
• Student loans: In most cases, student loans are not dischargeable in bankruptcy, unless the debtor can demonstrate undue hardship.
• Child support and alimony: Debts related to child support and alimony are non-dischargeable in bankruptcy.
• Debts incurred through fraud or dishonesty: Debts that were obtained through fraud, embezzlement, or other illegal means are generally non-dischargeable in bankruptcy.
• Fines and penalties: Fines and penalties imposed by government agencies, such as traffic tickets or criminal restitution, are generally non-dischargeable in bankruptcy.

How Bankruptcy in Texas Affects Your Credit Score

Filing for bankruptcy in Texas can have a significant impact on your credit score. In general, bankruptcy stays on your credit report for up to 10 years, and it can lower your credit score by as much as 200 points or more. The impact of bankruptcy on your credit score depends on several factors, including your credit history before filing, the type of bankruptcy you file (Chapter 7 or Chapter 13), and how much debt you discharge. After filing for bankruptcy, it may be more difficult to obtain credit, and the credit you are able to obtain may come with higher interest rates and fees.

How bankruptcy in Texas Affects Your Ability to Get a Loan in The Future

Filing for bankruptcy in Texas can affect your ability to get a loan in the future. After filing for bankruptcy, lenders may view you as a higher risk borrower, which can result in higher interest rates, larger down payments, or even a denial of credit. If you file for Chapter 7 bankruptcy, it may take up to 2-3 years before you can qualify for a mortgage, and up to 2 years before you can obtain an unsecured credit card. If you file for Chapter 13 bankruptcy, you may be able to obtain credit more quickly, but you will need to make your payments on time and according to your repayment plan.

Will You Lose Your Home or Car in Bankruptcy in Texas?

Whether you will lose your home or car in bankruptcy in Texas will depend on the type of bankruptcy you file and the value of your assets. Here are some key points to keep in mind:

• Chapter 7 Bankruptcy: In Chapter 7 bankruptcy, a trustee will be appointed to sell off any non-exempt assets to pay off creditors. In Texas, you may be able to protect your home and car through exemptions, which allow you to keep certain assets up to a certain value. Texas has some of the most generous bankruptcy exemptions in the country, which means that many individuals who file for Chapter 7 bankruptcy are able to keep their home and car.
• Chapter 13 Bankruptcy: In Chapter 13 bankruptcy, you will create a repayment plan to pay off your debts over a period of three to five years. If you have significant equity in your home or car, you may be required to pay a portion of that equity to creditors through your repayment plan. However, you will generally be able to keep your home and car as long as you continue to make payments on your mortgage and car loan.
• Non-Exempt Assets: If you have non-exempt assets that are not protected by exemptions, you may be required to sell those assets to pay off creditors in both Chapter 7 and Chapter 13 bankruptcy. If you have significant equity in your home or car that is not protected by exemptions, you may be at risk of losing those assets.

How Does Bankruptcy in Texas Affect Tax Debt?

Bankruptcy in Texas can potentially impact tax debts, but the specific impact will depend on the type of tax debt and the type of bankruptcy being filed. Here are some key things to keep in mind:

• Types of Tax Debts: There are two types of tax debts: priority and non-priority. Priority tax debts include recent income tax debts, while non-priority tax debts include older income tax debts, as well as other types of tax debts.
• Priority Tax Debts: Priority tax debts are generally not dischargeable in bankruptcy. However, filing for bankruptcy can potentially help you manage these debts by providing additional time to pay them off or by allowing you to discharge other debts that may be making it difficult to pay off your tax debts.
• Non-Priority Tax Debts: Non-priority tax debts may be dischargeable in bankruptcy if they meet certain criteria, including that the tax return was filed at least two years before filing for bankruptcy, the tax assessment was made at least 240 days before filing for bankruptcy, and the tax return was not fraudulent.
• Chapter 7 Bankruptcy: In Chapter 7 bankruptcy, non-priority tax debts that meet the above criteria may be discharged. However, priority tax debts are generally not dischargeable and must be paid.
• Chapter 13 Bankruptcy: In Chapter 13 bankruptcy, priority tax debts and non-priority tax debts must be included in the repayment plan, and the debtor must pay them off over the course of the plan.

Statute Of Limitations For Collections in Texas

In Texas, the statute of limitations for collections on most types of debts is four years. This means that if a creditor or debt collector tries to collect on a debt that is more than four years old, the debtor may have a legal defense to the collection attempt based on the expiration of the statute of limitations. It is important to note that the statute of limitations for collections in Texas can vary depending on the type of debt. For example, the statute of limitations for written contracts and promissory notes is four years, while the statute of limitations for oral contracts is two years. Additionally, it is important to understand that the statute of limitations clock begins ticking from the date of the debtor’s last payment or last written acknowledgement of the debt. So, even if a debt is several years old, if the debtor made a payment or acknowledged the debt in writing within the past four years, the statute of limitations may not have expired.

Cons of Bankruptcy in Texas

While bankruptcy can provide relief for individuals and businesses struggling with overwhelming debt, there are also several potential downsides or cons to consider. Here are some cons of bankruptcy in Texas:

• Impact on Credit Score: Filing for bankruptcy can have a significant negative impact on your credit score, which can make it more difficult to obtain credit in the future or may result in higher interest rates.
• Public Record: Bankruptcy is a matter of public record, which means that your filing will be available to anyone who searches for it, including potential employers and creditors.
• Cost: Bankruptcy can be expensive, and there are filing fees and attorney fees to consider. Additionally, if you file for Chapter 13 bankruptcy, you will be required to make monthly payments to a bankruptcy trustee for several years.
• Asset Loss: Depending on the type of bankruptcy you file, you may be required to sell off assets to pay back creditors. This can include personal property, real estate, and even business assets.
• Eligibility: Not everyone is eligible for bankruptcy, and certain types of debts, such as student loans and tax debts, may not be dischargeable in bankruptcy.
• Emotional Toll: Bankruptcy can be a difficult and emotional process, and it may feel like a failure or a last resort for some individuals.

Compare the Pros and Cons of Bankruptcy: Pros and Cons of Filing Bankruptcy

Why People Regret Filing Bankruptcy

People may regret filing for bankruptcy for several reasons, including:

• Impact on Credit Score: Filing for bankruptcy can have a significant negative impact on your credit score, which can make it more difficult to obtain credit in the future or may result in higher interest rates.
• Emotional Toll: The process of filing for bankruptcy can be stressful, and it may feel like a failure or a last resort for some individuals. It can also be emotionally difficult to sell off assets or go through the process of having debts discharged.
• Stigma: There is a social stigma associated with bankruptcy, and some people may feel ashamed or embarrassed to have to file for bankruptcy.
• Asset Loss: Depending on the type of bankruptcy you file, you may be required to sell off assets to pay back creditors. This can include personal property, real estate, and even business assets.
• Limited Financial Options: After filing for bankruptcy, you may have limited financial options, including difficulty obtaining credit or loans, and even renting an apartment or obtaining a job.
• Legal Consequences: Bankruptcy can have legal consequences, such as the possibility of losing professional licenses or the ability to serve as a director of a corporation.

Don’t Qualify For Bankruptcy in Texas? Explore The Alternative

If you do not qualify for bankruptcy in New Mexico, you may need to explore other options for managing your debt. An alternative to consider is debt settlement. Debt settlement involves negotiating with creditors to settle your debts for less than the full amount owed. This can be a good option if you have a significant amount of debt but cannot qualify for bankruptcy.

There are some potential benefits to debt settlement over bankruptcy that may make it a more favorable option for some individuals.

• No bankruptcy on your credit report: Filing for bankruptcy shows on your credit report for up to 10 years. On the other hand, debt settlement does not show as a bankruptcy.
• Cost: Filing for bankruptcy can be expensive, with filing fees, attorney fees, and other costs adding up quickly.
• Emotional Impact: People report horror stories of the negative emotional impact of BK.
• With a bankruptcy for the rest of their life: Employers or lenders can ask if someone has filed BK for the rest of their life. It is much less likely to be asked if one ever used debt settlement to pay back an agreed to amount.
• Control: With debt settlement, you may have more control over the process and negotiations with your creditors, whereas with bankruptcy, a court will make the final decision.
• Less severe consequences: Filing for bankruptcy can have significant consequences, such as the liquidation of your assets, whereas debt settlement may allow you to negotiate a more manageable repayment plan while keeping your assets.

Bankruptcy vs. Debt Relief: What’s Right For You and How We May Be Able To Help

CuraDebt – An Alternative To Consider

CuraDebt, a professional debt settlement firm, is a great alternative to bankruptcy. We have a team of debt professionals who are ready to help you better understand and potentially eliminate your debts. Contact us today for your free consultation. 1-877-850-3328

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