Bankruptcy is a federal legal process, not a state process. That means that the eligibility requirements, legal options and filing procedures are the same in every state, including Texas.
In order to file for bankruptcy in Texas, it is best to get an overview of the federal laws, as well as the relevant Texas state bankruptcy laws that determine what assets an individual can retain after declaring bankruptcy.
How Bankruptcy Works in Texas
Bankruptcy is a legal process intended to offer a new start to those who cannot pay their accumulated debts. While there are different types of bankruptcy cases, most individual Texans filing for bankruptcy file either under Chapter 7 or Chapter 13. These represent the two main types of bankruptcy in Texas:
- Chapter 7: Foreclosure bankruptcy, where the individual's assets are sold to pay debtors and much of their remaining debt is discharged.
- Chapter 13: Reorganization bankruptcy, where the debtor and the creditors agree on a repayment plan for debt in order to permit a longer payment schedule and lower payments.
Each of these types of bankruptcy has its own eligibility requirements, and the process for filing is very different. In Texas, both individuals and businesses can file for bankruptcy, but the requirements and available options differ. Generally, a bankruptcy trustee is appointed to manage the negotiations with the creditors.
In Texas, one of the primary benefits of a bankruptcy filing is that all collection efforts, including account attachments and foreclosures, are automatically stayed at the outset of the action. This is known as the "automatic stay" in bankruptcy. It can prevent the loss of the debtor's home or vehicle.
Texas Bankruptcy Courts
Texas has four different bankruptcy courts, each serving a specific area of the state. They are set out in the table below. Each federal district has multiple court locations.
Eastern District of Texas
Northern District of Texas
Southern District of Texas
Which Type of Bankruptcy Is Right for You?
Chapter 7 and Chapter 13 bankruptcies are the most common types of bankruptcy filings for individuals in Texas. When deciding which one to file, debtors need to consider that each type has different purposes and fits different situations.
It is important to determine which one would work best in a given situation based on an individual's financial situation and their assets.
Chapter 7 Bankruptcy Process
In Chapter 7 bankruptcy, an individual essentially forfeits most of their assets, other than those that state or federal laws declare to be exempt; their remaining debts are excused. This type of bankruptcy is relatively quick to file. I
n Texas, it might not take more than a few months to complete, and there are no extended payment plans to follow. On the other hand, the filer can lose valuable assets, including a residence and a vehicle if they are behind in payments and have substantial equity in them.
Chapter 13 Bankruptcy Overview
A Chapter 13 bankruptcy is one in which debts are restructured rather than being eliminated altogether. Those filing for Chapter 13 must establish a repayment plan for all creditors to pay part or all of what they owe.
On the other hand, those filing for Chapter 13 bankruptcy can prevent foreclosure on their home or repossession of their car. This type of bankruptcy gives a debtor extra time to repay debts, whether the creditor wants to extend the debt or not.
Texas Bankruptcy Exemptions
State bankruptcy exemptions are a list of the properties a debtor can protect from creditors when filing bankruptcy in Texas. Any exempt property can be protected up to the exemption limit and covers equity owned in the property. Equity is the difference between the current market value of the property and what is owed on the property.
For example, a motor vehicle valued at $10,000, with a loan of $5,000 against it, has an equity value of only $5,000.
Texas law sets out a number of exemptions from bankruptcy, which may exclude a home under the homestead exemption, personal property and a certain amount of savings. State law also gives filers a generous personal vehicle exemption. In Texas, a debtor has the choice of using the federal exemption statutes instead of Texas exemptions.
Debt Relief in the Bankruptcy Process
Most individuals considering bankruptcy hope to wipe out their debts, and the process can eliminate many consumer debts, like credit card balances and medical bills. If a debt is secured by an asset, the asset is collateral for that secured debt and will be forfeited.
That means, for example, that if an individual bought a home with a mortgage, the mortgage lender has the authority to take over the asset and sell it to cover missed payments. This is usually the case for car loans for financed vehicles, as well.
It's also important to recognize that not all debts can be discharged in bankruptcy. Some debts are termed nondischargeable. These include spousal and child support arrears, recent tax bills and certain student loans.
How to Find a Bankruptcy Lawyer in Texas
Anyone considering filing for bankruptcy without a bankruptcy lawyer should be sure that they understand the legal process and consequences of their actions.
Those who do file on their own, termed pro se litigants, do not get a break from the federal court in Texas or in any other state. In fact, court employees are not permitted to assist an individual filer.
It is possible to find people who are not attorneys, but who offer assistance filling out the bankruptcy court forms. Note that these petition preparers are forbidden from giving any type of legal advice or explanations, and, under Texas law, can only enter information onto the forms.
Seeking Attorney References
Finding a bankruptcy lawyer starts with asking for references. This might be from friends or acquaintances who have had a similar experience. But local attorney organizations like the Texas State Bar Association or local bar associations can also provide a list of qualified attorneys.
Pro se litigants must follow the same rules and procedures that bankruptcy attorneys follow or face sanctions. This includes familiarity with the U.S. Bankruptcy Code, Federal Rules of Bankruptcy Procedure, and the local rules of the Texas court.
Forms are available free from the court and can also be found online at the bankruptcy court website. The forms numbered in the 100 series are the appropriate ones to use for individuals and married couples filing for bankruptcy.
How to File for Bankruptcy in Texas
When an individual actually files for bankruptcy in Texas, they can get assistance from the federal courts. That's because the U.S. Bankruptcy Court offers both the requisite forms for bankruptcy filings, as well as instructions for those forms online.
Essentially, debtors must first collect all relevant financial information, including complete income information with sources and amounts, and several years of tax filings. All debt information is also necessary, both secured and unsecured debt, as well as a monthly budget and information about recent significant financial transactions.
A list of assets, including deeds to property owned and titles to vehicles, should be included.
From that information, the petitioner should complete the bankruptcy petition and fill out any other necessary court forms. In every case, the answers on the bankruptcy forms should be complete and honest. It is especially important to list all debts, creditors and assets.
What Happens After Filing for Bankruptcy in Texas
After an individual files for bankruptcy in Texas, whether Chapter 7 or Chapter 13, almost all debt collection assets come to a halt. An automatic stay goes into effect that forbids creditors from taking any action to collect the debts. It also halts any litigation, including foreclosure procedures against a home or repossession actions against a vehicle.
The court sends a notice to all of the creditors listed in the petition informing them of the stay – another reason for filing complete documents. A creditor who gets notice of the bankruptcy proceeding, but continues to harass the debtor, can face fines and court penalties.
Effect of the Automatic Stay
The automatic stay gives the debtor breathing room since it not only forces creditors to cease their collection activities immediately, it precludes any new legal actions in Texas state court against the individual for debts.
On the other hand, this is not always the final say. Lenders can file a motion in bankruptcy court asking the judge to lift the stay. If the court agrees, the lender can go ahead with a separate legal action to collect a debt.
Other Effects of a Bankruptcy Discharge
While the idea of having debt erased and gaining a fresh start is a pleasant one for most individuals, bankruptcy comes at a cost. That is, a bankruptcy negatively affects the person's credit report and tanks their credit score.
This makes sense since getting debts discharged without paying them makes it less desirable for another creditor to lend that individual money.
And the bankruptcy stays on a credit report for quite a while. If a person files for Chapter 7 bankruptcy, the filing will remain on their credit report for 10 years. A Chapter 13 filing stays on the credit report for only seven years, since it involves a structured repayment plan rather than a liquidation or discharge of debt.
FAQs About Bankruptcy in Texas
How much does it cost in Texas to file bankruptcy?
Court filing fees for bankruptcy in Texas vary depending on the type of filing. Chapter 7 bankruptcy costs $2,300, and Chapter 13 bankruptcy costs $3,300. In both cases, additional expenses, including attorney fees, can raise the overall cost of filing for bankruptcy even higher.
What property is protected in bankruptcy in Texas?
Texas law sets out a number of exemptions from bankruptcy, which may exclude a home under the homestead exemption, personal property and a certain amount of savings. State law also gives filers a generous personal vehicle exemption. In Texas, a debtor has the choice of using the federal exemption statutes instead of the Texas exemptions.
How long does Chapter 7 take in Texas?
Chapter 7 is a relatively quick bankruptcy and can be completed in some six weeks.
Is bankruptcy in Texas good for my credit rating?
No. Bankruptcy in any state negatively impacts credit for up to 10 years.
How does one file for bankruptcy in Texas?
When an individual files for bankruptcy in Texas, they can get assistance from the federal courts. That's because the U.S. Bankruptcy Court offers both the requisite forms for bankruptcy filings, as well as instructions for those forms online.
Essentially, debtors must first collect all relevant financial information, including complete income information with sources and amounts, and several years of tax returns. All information about secured and unsecured debt is required, as well as a monthly budget and information about recent significant financial transactions.
A list of assets should be compiled, including deeds to real estate and titles to vehicles. From that information, the petitioner completes the bankruptcy petition and fills out any other necessary court forms. In every case, the answers on the bankruptcy forms should be complete and honest. It is especially important to list all debts, creditors and assets.
- United States Courts: Filing for Bankruptcy Without an Attorney
- Nolo: Filing For Bankruptcy in Texas
- Leinart Law: Bankruptcy in Texas
- Kretzer Firm: What Happens When You File Bankruptcy in Texas
- Texas Bankruptcy Law: FAQs
- U.S Bankruptcy Court: Western District of Texas
- U.S Bankruptcy Court: Southern District of Texas Address,, Hours, Phone
- U.S. Bankruptcy Court: Bankruptcy Forms
- United States Courts: Bankruptcy Form Instructions for Individuals
Teo Spengler earned a J.D. from U.C. Berkeley's Boalt Hall. As an Assistant Attorney General in Juneau, she practiced before the Alaska Supreme Court and the U.S. Supreme Court before opening a plaintiff's personal injury practice in San Francisco. She holds both an M.A. and an M.F.A in creative writing and enjoys writing legal blogs and articles. Her work has appeared in numerous online publications including USA Today, Legal Zoom, eHow Business, Livestrong, SF Gate, Go Banking Rates, Arizona Central, Houston Chronicle, Navy Federal Credit Union, Pearson, Quicken.com, TurboTax.com, and numerous attorney websites. Spengler splits her time between the French Basque Country and Northern California.