Bankruptcy FAQs

Chapter 7 bankruptcy is a legal process governed by 11 U.S.C. § 701-784 that allows individuals and businesses to eliminate most unsecured debts through a fresh start. It's often called "liquidation" bankruptcy because the trustee may sell non-exempt assets to pay creditors. However, most Texas filers keep everything they own—a typical Chapter 7 case is known as a "no asset" case.

In a Chapter 7 filing, you list all your assets and liabilities. The bankruptcy court issues an automatic stay, which immediately stops all collection efforts. After completing mandatory credit counseling and debtor education courses, your eligible debts are discharged, leaving you debt-free in just 3-6 months. This process is designed to give honest debtors a genuine financial fresh start.

To qualify for Chapter 7, you must pass the "means test," which compares your income to the Texas median for your household size. As of November 1, 2025, the current Texas median income limits are:

1 person: $65,123 | 2 people: $84,491 | 3 people: $96,728 | 4 people: $114,938 | Additional person: +$11,100 each

If your current monthly income is below the median for your household size, you automatically qualify for Chapter 7. If your income is above the median, the means test calculates your "disposable income" through deductions for living expenses; you may still qualify if your disposable income is below a certain threshold.

Important: Social Security income is excluded from the means test calculation. Additionally, you must have lived in Texas for at least 730 days (2 years) to use Texas exemptions. You must also complete credit counseling with an approved agency before filing.

The federal court filing fee for Chapter 7 is $338. This fee can be paid in installments over time, and low-income filers may request a waiver or reduction. Beyond the court fee, you'll need to budget for two mandatory courses:

Credit Counseling Course: $15-50 (must be completed before filing)

Debtor Education Course: $15-50 (must be completed before discharge)

Attorney fees vary depending on the complexity of your case and local market rates. The Law Office of Donald E. Hood offers affordable payment plans to make bankruptcy accessible to those who need it. Many clients find that the small upfront investment in legal help saves them thousands by maximizing exemptions and protecting their property.

For a free consultation of your costs and options, call (888) 239-7259.

Chapter 7 (Liquidation): Eliminates most unsecured debts in 3-6 months. Subject to the means test, which limits eligibility based on income. Requires Social Security to be excluded from income calculations.

Chapter 13 (Reorganization): Restructures all debts into a court-approved repayment plan lasting 3-5 years. No income limit—available to higher earners. Allows you to catch up on missed mortgage and car payments over the plan period while keeping your home and vehicle.

Chapter 7 provides the fastest path to a fresh start, while Chapter 13 is ideal if you want to keep property, have significant income, or need to cure mortgage/auto loan arrears. The right choice depends entirely on your personal financial situation, assets, and goals. An experienced bankruptcy attorney will review both options with you during your free consultation.

The time you must wait before filing again depends on which chapters you filed and in which order. Time is measured from the filing date of your prior case to the filing date of your new case:

Chapter 7 after Chapter 7: 8 years

Chapter 7 after Chapter 13: 6 years

Chapter 13 after Chapter 7: 4 years

Chapter 13 after Chapter 13: 2 years

If your circumstances have changed significantly since your last filing, you may still be eligible for relief even if less time has passed. Contact the Law Office of Donald E. Hood to discuss your specific situation and whether you may qualify for another bankruptcy filing.

Yes. Texas law provides generous exemptions for personal property. In most Chapter 7 cases, you'll keep all your household goods, including furniture, appliances, electronics, and other personal items.

Additionally protected under Texas exemptions are:

• Clothing and accessories
• Food and provisions
• Farming and ranching equipment
• Tools of trade (tools necessary for your livelihood)
• Personal items up to specific dollar limits

When filing, you have the option to elect either Texas exemptions or Federal exemptions (11 U.S.C. § 522(d)). The choice should be made carefully based on your specific assets. Your bankruptcy attorney will review both options to maximize the property you can protect. In virtually all cases, you will keep the items you use in daily life and work.

Possibly yes. Texas has one of the strongest homestead exemptions in the country. You can protect an unlimited dollar value of equity in your primary residence, provided the property is located on up to 10 acres in an urban area or 100 acres in a rural area.

The Federal exemption, in contrast, protects up to $31,575 in home equity (as of 2023). Most Texas homeowners elect the Texas exemption because of its unlimited protection.

Important protections:

Automatic Stay: Upon filing, 11 U.S.C. § 362 immediately stops all foreclosure actions and creditor collection efforts. This gives you immediate breathing room.

Mortgage Obligations: You must continue to make regular mortgage payments during and after bankruptcy. The homestead exemption protects equity, not the mortgage debt itself.

Upside-Down Properties: If your home is worth less than what you owe ("underwater"), you may choose to surrender it and eliminate the deficiency debt, freeing yourself from the mortgage obligation.

An experienced bankruptcy attorney can help you develop a strategy to keep your home if that's your goal.

Yes, in most cases. Texas exemptions protect one motor vehicle for each licensed household member. The Federal exemption protects up to $5,075 in vehicle equity per vehicle.

The automatic stay stops any repossession attempts immediately upon filing, giving you immediate protection from creditors attempting to take your vehicles.

Continuing Payments: To keep a vehicle, you must stay current on all car loan payments during and after your bankruptcy. If you fall behind, the creditor may file a motion to lift the automatic stay and proceed with repossession.

Upside-Down Vehicles: If you owe more on a car than it's worth, you can surrender it and have the deficiency (the amount owed above the car's value) discharged. This frees you from the debt and eliminates that monthly payment.

Multiple Vehicles: If you own multiple vehicles but only one is exempt, the trustee may sell the non-exempt vehicle and use the proceeds to pay creditors. Your attorney can help you plan which vehicles to keep.

In most cases, no. Retirement accounts receive strong protection in bankruptcy:

ERISA-Qualified Plans: 401(k)s, pensions, 403(b)s, and similar employer-sponsored plans are fully exempt. These funds are completely protected from creditors and the bankruptcy trustee.

IRAs (Traditional and Roth): Protected up to $1,512,350 (federal exemption cap as of 2023). Most individuals will never reach this cap, so their IRAs are fully protected.

SEP-IRAs and SIMPLE IRAs: Generally fully protected up to the same $1,512,350 cap.

Social Security Benefits: Fully protected. These funds cannot be touched by creditors or the bankruptcy trustee, whether in a checking account or elsewhere.

Other Retirement Plans: Government employee pensions (PERS, STRS) are typically fully protected.

Before filing, discuss all your retirement accounts with your bankruptcy attorney to confirm specific protection status.

Typically yes. However, the bankruptcy trustee will review your bank account balance as of the filing date to determine if there are non-exempt funds that should be distributed to creditors.

Protected Funds: Money from exempt sources—such as Social Security, disability benefits, child support, or retirement distributions—is protected even if held in your bank account.

Best Practices: Keep your account balance reasonable and reasonable close to the filing date. Avoid large deposits or transfers immediately before filing, as these may raise red flags or trigger trustee inquiries.

New Account: Many filers choose to open a new bank account at a different bank after filing. This provides a clean slate and avoids any potential complications with creditors who may have had prior contact with your previous bank.

Your bankruptcy attorney will guide you on managing your accounts before and after filing to protect your assets.

Secured Debt: Backed by collateral—property that the creditor can claim if you don't pay. Examples include mortgages (secured by your home), car loans (secured by your vehicle), and equipment financing. If you stop paying, the creditor has the right to repossess the property.

Unsecured Debt: Not backed by any collateral. The creditor has no specific property to seize if you fail to pay. Examples include credit card balances, medical bills, personal loans, and payday loans. Unsecured creditors may sue you and obtain a judgment, but they must go through collection processes to recover.

Bankruptcy Impact: In Chapter 7, unsecured debts are typically discharged (eliminated) entirely. Secured debts require you to decide: keep the property and stay current on payments, or surrender it and have the debt discharged (or partially discharged if the property is worth less than the debt).

Most debts are discharged in Chapter 7, but certain debts are non-dischargeable, meaning you remain legally obligated to pay them:

Tax Debt: Income taxes less than 3 years old are generally not discharged. However, older tax debt may be dischargeable.

Fraudulently Obtained Credit: Debts obtained through fraud or false statements.

Unlisted Debts: Creditors you fail to list in your bankruptcy schedules (though there are exceptions for debts you discover later).

Family Support: Child support and alimony obligations are never discharged.

Student Loans: Federal student loans are generally non-dischargeable. Private student loans may be dischargeable in specific circumstances, requiring an adversary proceeding.

DUI/DWI Judgments: Liability for personal injury or death caused by drunk or drugged driving.

Debts Incurred After Filing: Any debt you create after your petition is filed is not included in your bankruptcy.

HOA Fees: Some homeowners association fees and assessments may survive discharge.

Your attorney will review all your debts to identify which will be discharged and which will survive. This is one reason professional legal guidance is essential.

Yes. One of the most powerful protections in bankruptcy law is the automatic stay, codified in 11 U.S.C. § 362. This takes effect immediately upon filing and stops virtually all collection actions:

• Wage Garnishment: Stopped immediately
• Bank Levies: Halted
• Lawsuits: Suspended
• Foreclosure Proceedings: Stopped (giving you time to cure arrears or determine your options)
• Repossession Attempts: Blocked
• Creditor Calls and Letters: Must cease

The bankruptcy court sends official notice to all creditors listed in your schedules. Creditors must immediately halt collection efforts, or they risk contempt of court charges and potential sanctions.

This breathing room is often the most immediate benefit clients experience—collection actions stop, giving you time to reorganize your finances and work through the bankruptcy process.

Immediately upon filing your bankruptcy petition. The automatic stay prohibits all creditor contact the moment your case is filed with the bankruptcy court.

Official Notice: The U.S. Bankruptcy Court sends official notice of your filing to all creditors listed in your bankruptcy schedules. Once received, creditors are legally required to cease all collection efforts and contact.

Enforcement: If a creditor continues to call, send letters, or attempt collection after receiving notice of your bankruptcy filing, they are violating the automatic stay. Violations may result in:

• Contempt of court charges
• Sanctions imposed by the judge
• Damages and attorney fees payable to you
• In egregious cases, punitive damages

If you receive harassing calls or letters after filing, contact your attorney immediately to report the violation. We will take action to protect your rights under the automatic stay.

Absolutely. In fact, bankruptcy can improve your credit profile by replacing high outstanding balances with zero balances. Your debt-to-income ratio improves significantly, making you appear less risky to future lenders.

Credit Rebuilding Timeline:

• Immediately after discharge: You may qualify for secured credit cards (backed by a cash deposit) to begin rebuilding.
• 6-12 months: Most clients see measurable improvement in credit scores through responsible use of new credit.
• 12-18 months: Meaningful credit score recovery is common. Many clients qualify for regular credit cards, auto loans, and other credit products.
• 2+ years: Many clients have successfully rebuilt their credit sufficiently to qualify for mortgages.

Interest Rates: Your initial interest rates may be higher than prime, but these normalize quickly as you demonstrate responsible credit behavior. Responsible payment history rebuilds trust with lenders far faster than you might expect.

The fresh start provided by bankruptcy often outweighs the temporary credit impact, especially when compared to years of struggling with unmanageable debt.

Chapter 7 can remain on your credit report for up to 10 years from the filing date. However, its negative impact diminishes significantly over time—this is important to understand.

The Impact Fades: While 10 years seems long, credit bureaus and lenders focus on more recent payment history. A bankruptcy from 5 years ago carries far less weight than a recent default or late payment.

Credit Score Recovery: Most people see meaningful improvement in their credit scores within 12-18 months of discharge. By the 2-year mark, many clients have credit scores in the "good" range (650-700+), especially if they've been responsible with new credit in the interim.

The True Fresh Start: The value of bankruptcy isn't just about the credit report timeline—it's about starting fresh without the burden of unmanageable debt. Many clients find that the psychological relief and financial stability gained far outweigh the temporary credit impact.

Lenders increasingly recognize that bankruptcy is often a rational, responsible decision rather than a sign of irresponsibility. You will get credit again, and you'll likely qualify for favorable terms much sooner than you expect.

That decision is entirely up to your card issuers. Here's what typically happens:

Cards with Balances: If you're discharging a balance on a card, that issuer will almost certainly cancel the card. The creditor has no incentive to maintain a relationship with you after their debt is eliminated in bankruptcy.

Zero-Balance Cards: Even cards you've paid off or never used may be canceled once the issuer discovers your bankruptcy filing. Issuers conduct periodic reviews and often close accounts of filers to limit risk.

Reaffirmation: Some card issuers may offer "reaffirmation"—an agreement to remain responsible for the debt even after discharge. This option should be carefully considered with your attorney, as reaffirming a debt eliminates the benefit of discharging it in bankruptcy.

New Credit: After discharge, you can apply for new credit products. Secured credit cards are designed for filers and those rebuilding credit. As your credit improves, you'll qualify for unsecured cards and other credit products.

The bottom line: don't expect to keep old cards, but focus on building new credit relationships after your fresh start.

No. Federal law strictly prohibits employment discrimination based on bankruptcy filing. 11 U.S.C. § 525(b) protects both private and public sector employees:

Private Employers: Cannot fire, demote, suspend, reduce pay, or otherwise discriminate against you solely because you filed bankruptcy.

Government Employers: Cannot discriminate against you based on bankruptcy filing, including denying, revoking, or suspending a license, permit, or other right or benefit.

What's Protected: Your job, your salary, your benefits, your work schedule, your advancement opportunities—all are protected from discrimination based solely on your bankruptcy filing.

What's Not Protected: If you have a legitimate work-related performance or conduct issue unrelated to bankruptcy, your employer can still address it. Bankruptcy doesn't give you a free pass to ignore work rules.

Violation: If an employer violates this protection, you may have grounds for a legal claim. Report any such discrimination to your bankruptcy attorney immediately.

You can file bankruptcy without fear of job loss. Your employment is protected by federal law.

From filing to discharge, Chapter 7 typically takes 3-4 months. Here's the standard timeline:

Step 1: Initial Consultation & Credit Counseling
Before filing, you must complete credit counseling with an approved agency (online or phone, typically 1-2 hours). Cost: $15-50.

Step 2: Petition Preparation & Filing
Your attorney prepares detailed financial schedules and files your petition with the court. Filing fee: $338 (can be paid in installments or waived for low-income filers). The automatic stay takes effect immediately.

Step 3: Meeting of Creditors (341 Hearing)
Scheduled approximately 30 days after filing. You meet with the bankruptcy trustee and creditors to discuss your finances. Most creditors don't attend. The meeting typically lasts 10-15 minutes.

Step 4: Debtor Education Course
Completed after the 341 meeting and before discharge. Online, phone, or in-person. Cost: $15-50. This course covers financial management and budgeting.

Step 5: Discharge Order
Upon completion of all requirements, the court enters a discharge order (typically 60 days after the 341 meeting). Your debts are eliminated, and you receive a fresh start.

Total Timeline: 3-4 months from filing to discharge. The entire process is designed to give you a quick, clean fresh start.

While it is legally possible to file bankruptcy on your own (called filing "pro se"), bankruptcy law is extremely complex. Mistakes can have serious consequences:

Risks of Filing Without an Attorney:

• Petition Errors: Mistakes in your schedules, calculations, or disclosures can result in dismissal of your case. You'd have to start over, wasting time and potentially facing additional hardship.
• Lost Exemptions: If you incorrectly claim or fail to claim exemptions, you may lose property you could have protected. Missing or incomplete exemption claims can result in loss of assets worth thousands of dollars.
• Denial of Discharge: Procedural errors can prevent the court from entering a discharge order, leaving you with no bankruptcy relief despite having filed.
• Tax and Fraud Issues: Mishandling your tax debt or inadvertently making false statements can create serious legal consequences.
• IRS Complications: Improper handling of tax claims can result in unpaid taxes, liens, and ongoing collection actions.

Why an Attorney is Essential: An experienced bankruptcy attorney ensures your petition is accurate and complete, maximizes your exemptions to protect your property, guides you through creditor negotiations, represents you at the 341 hearing, and handles any complications that arise. The investment in legal help typically saves clients thousands by protecting property and ensuring a successful outcome.

Affordable Options: The Law Office of Donald E. Hood offers free consultations and flexible payment plans to make bankruptcy accessible. Many clients find that the cost of legal representation is far less than the value of protection and peace of mind it provides.

Contact us for a free consultation: (888) 239-7259.