The recent financial crisis in the United States has led to record levels of unemployment, an unprecedented number of foreclosures, and millions of hard-working people who are finding it harder and harder to keep their heads above water financially. If you find yourself falling farther and farther behind with your bills, have been notified that your home is in foreclosure, or fear that you might lose part of your paycheck to a wage garnishment, filing a bankruptcy case stops these collection actions and can be a huge relief.

1. CHAPTER 7
BANKRUPTCY –
What You Need to Know
ERIN B. SHANK
CENTRAL TEXAS BANKRUPTCY ATTORNEY

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Filing a Chapter 7 bankruptcy is the
quickest and most efficient way to
alleviate financial strain and get you back
on your road to a fresh financial start!
The recent financial crisis in the United States has led to record levels of
unemployment, an unprecedented number of foreclosures, and millions of
hard-working people who are finding it harder and harder to keep their heads
above water financially. If you find yourself falling farther and farther
behind with your bills, have been notified that your home is in foreclosure, or
fear that you might lose part of your paycheck to a wage garnishment, filing
a bankruptcy case stops these collection actions and can be a huge relief.
Filing a Chapter 7 bankruptcy is the quickest and most efficient way to
alleviate financial strain and get you back on your road to a fresh financial
start!
THE U.S. BANKRUPTCY CODE
The U.S. Congress has established laws that allow people to rid themselves of
debt and keep their exempt assets. These laws are found in the U.S.
Bankruptcy Code, a federal law that is applicable in all fifty states. Although
various state laws do come into play when a bankruptcy case is filed, most of

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the laws affecting bankruptcy are federal and are found in the U.S.
Bankruptcy Code.
HOW IS A CHAPTER 7 BANKRUPTCY DIFFERENT FROM OTHER
CHAPTERS?
A Chapter 7 case is the most common type of bankruptcy filed in America.
Because of our strong exemption laws, Debtors filing Chapter 7 in Texas are
allowed to keep virtually all of their assets and discharge their debts. The
only debts not dischargeable if a Chapter 7 case is filed are student loans,
some taxes (some taxes are actually dischargeable), child support and debts
incurred while driving while intoxicated or under the influence of drugs.
Chapter 7 cases last only approximately three to four months and your wages
are not garnished. It is the quickest, most efficient type of bankruptcy and
should be considered the “first choice” if you are looking at bankruptcy relief.
WHAT HAPPENS IF I FILE A CHAPTER 13 BANKRUPTCY CASE?
Chapter 13 is another type of bankruptcy available for individuals with
financial challenges. In a Chapter 13 case, the Debtor proposes a plan to
repay, at least a portion of the unsecured debt, over a three to five year
period. If a Chapter 13 is filed, the individual will actually be in an active
bankruptcy case for three to five years, with his/her wages being garnished
for the entire three to five year life of the Chapter 13 case. If an attorney is
recommending a Chapter 13 case as the only alternative for your financial
strains, you may want to seek a second opinion.

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WHAT IS THE MEANS TEST?
In 2005, Congress amended the Bankruptcy Code to include a complicated
form commonly referred to as the “Means Test”. This form most be
completed by Debtors filing both Chapter 7 and Chapter 13 cases. The form
actually requires that the Debtor’s income received in the six months before
the case be calculated and then compared to income of others in the
Debtors’ zip code according to the census. The form is actually quite
complicated and therefore the assistance of an experienced bankruptcy
attorney is strongly advised. However, do not think that your income
automatically makes you qualified for only a Chapter 13, not a Chapter 7.
The means test is required to be completed and filed in order to file both
Chapter 7 and Chapter 13 cases and an experienced bankruptcy attorney can
complete the form accurately and completely as long as you provide the
attorney all of your pay stubs for the six months preceding the filing of the
case and supply your attorney with the amount of other expenses and bills
that you must pay each month.
WHAT IS THE PROCESS FOR A CHAPTER 7 BANKRUPTCY?
A chapter 7 bankruptcy begins when the petition is filed with the bankruptcy
court. Prior to filing the bankruptcy petition, the debtor must take a brief
consumer credit counseling course online. The minute the bankruptcy case if
filed, an injunction is in place stopping all collection activity, including
foreclosure, garnishment, lawsuits, harassing phone calls, etc. When the
bankruptcy case is filed, complicated documents called Schedules, Statement

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of Financial Affairs and a Means Test must also be filed with the Court.
These documents are complicated and signed under the penalty of perjury.
Therefore, hiring an attorney to assist you complete these forms is highly
advisable. When the case is filed, a Chapter 7 Trustee is also automatically
appointed who reviews the documents filed in the case and conducts a brief
meeting with the client and the client’s attorney, which is commonly referred
to as a Section 341 meeting. The client responds to the Trustee’s questions
under penalty of perjury, so it is very important that the testimony is truthful.
The attorney who filed the case should attend this meeting with the Trustee.
Most Section 341 meetings only last five to ten minutes. The Debtor must
take a Debtor Education course, which is typically an online video or DVD,
and the Debtor is discharged approximately 60 days after the Section 341
meeting is held.
CAN I KEEP MY HOUSE AND CAR IN A CHAPTER 7
BANKRUPTCY?
Absolutely! However, in order to keep your home and your car, you must
continue to pay the lender who loaned you the money to purchase that asset,
commonly referred to as the Purchase Money Lender. Due to strong
exemption laws in Texas, you can also keep all of the contents of your home
and tools of your trade as long as those assets are worth under $60,000.00
the day that the bankruptcy case is filed. IRA’s and retirement accounts are
exempt as long as they are less than $1 million. In Texas, it is rare that an

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individual is not able to exempt all of the assets owned. Only in the rarest of
cases is any asset “liquidated” in a Chapter 7 case.
WILL ALL OF MY DEBTS BE DISCHARGED?
A chapter 7 bankruptcy will result in almost all debts being discharged. There
are a few types of debts that cannot be discharged through a Chapter 7
bankruptcy filing. Some common examples of debts that cannot be
discharged include:
Certain types of tax debts
Spousal and child support
Student loans
Debts for personal injury caused by driving under the influence of
drugs or alcohol.
WHAT WILL HAPPEN TO MY CREDIT AFTER I FILE CHAPTER 7
BANKRUPTCY?
While it is certainly understandable that debtors worry about their credit
post-bankruptcy, the reality is that your credit rating is likely not good now if
you are considering bankruptcy. The good news is that for many debtors,
their credit rating actually improves as soon as the bankruptcy is discharged.
This occurs for a number of reasons. First, your debt to income ratio typically
improves significantly the day the bankruptcy is discharged. In addition,
creditors know that you will not be able to file another Chapter 7 case for
eight years. Shredding unsecured debt can also give you breathing room to

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bring past-due accounts such as your mortgage current. Many clients are
able to discharge debts secured by cars that the Debtor no longer wants to
own. These clients then purchase new cars while they are in a Chapter 7
bankruptcy. Not only do they have more dependable transportation, the
new car financing helps improve their credit. Most Debtors are able to obtain
a car loan for a new or used vehicle during the Chapter 7 case and
immediately after the Chapter 7 discharge. Clients with steady and
sufficient income can even obtain a mortgage to purchase a home within two
years after filing a Chapter 7 case. Many clients have such large unsecured
debt, they could not pay all of that debt off in two years. Therefore, filing a
Chapter 7 case, discharging that debt, using the funds that they were using
to pay the unsecured debt to save for a down payment for the purchase a
home, can be a responsible way to address financial concerns.
If you think that filing a Chapter 7 bankruptcy is the solution to your financial
difficulties and you live in Central Texas, please feel free to call our offices in
either Waco or Killeen, to schedule a free initial consultation - our phone
number is 254-296-1161. In just a few short months you may finally be in a
position to keep your head above water and start planning for a better future.
REFERENCES
Texas Bankruptcy Law, Texas Bankruptcy Exemptions
NOLO, Texas Bankruptcy Exemptions

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About the Author About the Author
Erin B. Shank
With extensive training and years
of experience helping families
throughout Central Texas, Erin B.
Shank is here to help you conquer
your financial obstacles. Whether
you need guidance and advice
regarding bankruptcy, debt
consolidation, tax debt or other
financial problems, our friendly and
qualified team can help you find
solutions that will enable you to
manage or eliminate your debt.
Erin B Shank, PC
1902 Austin Avenue
Waco, TX 76701
(254) 296-1161
1711 East Central Texas Expressway
Suite 107
Killeen, TX 76541
(254) 690-4110
www.centraltexasbankruptcy.com