If you decide to file for bankruptcy, it is vital that you understand your legal rights. Bankruptcy laws protect consumers and companies by giving them a fresh start financially and by stopping the abusive collection methods employed by outstanding creditors. By allowing individuals and businesses to eliminate certain debts, bankruptcy offers individuals and companies a second chance at controlling their debt.


Business Liquidations Credit Card Debt Creditor Harassment
Chapter 7 Bankruptcy Chapter 13 Bankruptcy Chapter 11 Bankruptcy
Foreclosures Repossessions Judgments
Bankruptcy Litigation Business Reorganizations IRS Problems


Chapter 7 bankruptcy is known as liquidation because the case discharges all of your unsecured debt. A debt is secured if it was incurred to buy specific items that the creditor retains an interest in and can repossess, such as your house, vehicle, furniture and appliances. If payments are current, the secured merchandise may often be kept in a Chapter 7 bankruptcy. However, you may also be able to surrender secured collateral and discharge any potential deficiency if this is in your best interest. Whether a debt is secured or unsecured should be discussed with an experienced attorney.

Chapter 7 gives you a fresh start by discharging your unsecured debts, such as credit card debt, personal loans, judgments, deficiency balances, and medical bills, while allowing you to keep all of your exempt assets such as houses, cars, and retirement accounts.

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Chapter 13 is used for wage earners, debt reorganization or debt consolidation, and is effective in stopping repossessions and foreclosures. In a Chapter 13, the debtor(s) propose a plan of reorganization to repay creditors all or a portion of the debt owed. Some debt will be repaid in full and depending on circumstances, some creditors may receive only a partial payment of the debt. This type of plan also reorganizes your debt load by consolidating your bills into one monthly payment.

An individual, a married couple or small, unincorporated businesses who qualify may file Chapter 13. Chapter 13 is especially helpful for consumers who are behind on mortgage or car payments because it allows you to catch up delinquencies while immediately halting foreclosures and repossessions. Chapter 13 can also assist consumers wishing to consolidate their bills or who are facing difficulties with the IRS. Chapter 13 can stop levies, judgments and garnishments, as well as creditor harassment.

For those who are unqualified for a bankruptcy under Chapter 7, a Chapter 13 is still possible to restructure debt to a manageable payment by eliminating or reducing interest. The amount paid to creditors is dependent on several factors including type of debt, amount of debt, assets and disposable income of debtor(s). Chapter 13 permits you to keep your property by repaying creditors out of your future income. After completion of your payments under the plan, Chapter 13 debtors receive a discharge of most debts.

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In Texas, a petition to file Chapter 11 bankruptcy begins with a voluntary petition form which includes the individual or business name, place of operation, location of principal assets, the debtor’s plan and a request for relief. Filing a petition stops all listed creditors from trying to collect money a debtor owes them. The court notifies creditors of the filing. A stay of collections becomes effective at the time of the filing, even though the creditors will not be notified until afterward. After the creditors have been notified, they must cease all lawsuits, garnishment actions and telephone calls against the debtor. By filing Chapter 11, the business automatically becomes a debtor in possession, which means it controls the assets but still owes money. Generally, trustees are not appointed in Chapter 11 cases.

A written statement, including a plan for reorganization, must be filed with the court. For 120 days after the filing, the debtor has exclusive rights to the plan. Because Chapter 11 cases can take a few years, a creditor has a right to file its own plan for the reorganization of a company. This plan must list outstanding claims and detail how each of these claims will be treated. The claim must also show how the company would earn more money if it were allowed to keep its assets than if its assets were liquidated. In order for it to be approved by creditors, each class of creditors must approve the plan with majority vote. If plan is not approved, the company must be liquidated.

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Foreclosure is the legal proceeding in which a bank or other secured creditor sells or repossesses a parcel of real property due to the owner’s failure to comply with an agreement between the lender and borrower called a “mortgage” or “deed of trust”. Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property.

Lenders in Texas may use either a judicial or non-judicial process to foreclose on deeds of trusts or mortgages in default.

Judicial Foreclosure
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, the property will be auctioned off to the highest bidder.

Non-Judicial Foreclosure
The non-judicial process of foreclosure is used when a “power of sale” clause exists in a mortgage or deed of trust, which provides that the borrower authorizes the sale of property to pay off the balance on a loan in the event of their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee.

A Foreclosure by Sale ends in the posting of a sign advertising the auction of your home on the sale date. The only ways to stop a foreclosure are full payment of the arrearage, or the filing of a Chapter 13 bankruptcy. A Chapter 13 can be filed at any time prior to the law day or sale date, and it is often the only avenue to save your home.

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A lawyer can stop creditor harassment. Once you file for bankruptcy all collection attempts by creditors must cease. A lawyer may also prevent a creditor from attempting illegal collection methods. Collection agencies are paid a percentage of what they collect; therefore the more they collect the more they get paid. Because the industry is based on this commission sometimes the only way you can stop creditor harassment is through legal action.

Creditor harassment is when a bank or other business acts in a manner that is harassing, oppressive or abusive in connection with the collection of a debt. Because they are directly trying to collect the debt, creditor harassment does not fall under the Fair Debt Collection Practices Act. However, there are other consumer credit laws that protect you.

Here are some examples of debt collection harassment:

•Debt collector threatens to hurt you if you don’t pay your bills.

•Debt collector comes to your house and damages your personal property.

•Debt collector starts swearing/using obscene language over the phone.

•Debt collector threatens to send you to jail if you don’t pay your bills.

•Debt collector keeps calling you on the phone, harassing you to pay the bill.

Debt Consolidation:

Debt consolidation is not a loan. Debt consolidation is a process in which debt is restructured into one low monthly payment. It further enables a consumer to reduce the amount owed and thereby eliminate interest. Very often a consumer can detect warning signs of being in too much debt long before any collection notices are received. If more than two of the following signs apply to you, you are probably in too much debt:

•You have begun charging to your credit card essential expenses like food and daily expenditures

•You are making only the minimum payments on your credit cards each month

•You are near the limit of your credit cards

•You have too many credit cards

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