Christopher Todd Morrison, P.C.
Affordable Bankruptcy

Houston Bankruptcy Blog

How bankruptcy affects a credit rating

Texas consumers who are considering filing for bankruptcy might wonder how long it will remain on their credit record. A Chapter 7 bankruptcy remains on a person's credit report for ten years while a Chapter 13 bankruptcy stays on the credit report for seven years.

More than half a million people file for bankruptcy annually, mostly because of medical debt. Unfortunately, bankruptcy is not always easy and could have consequences. People might struggle to rent a place, buy a home or get a loan after a bankruptcy. Tax debts, student loans, and debts related to child or spousal support generally cannot be discharged in a bankruptcy. With a Chapter 13 bankruptcy, a person even continues paying back creditors although it is on a manageable schedule. In a Chapter 7 bankruptcy, a person may keep some assets while others are liquidated to pay creditors.

If your vehicle is about to be repossessed, you have options

If you have fallen behind on your car or truck payments, the lender may be threatening to take it back. You need your vehicle for work, to take the kids to school, to go grocery shopping. How will you manage if the repo man comes?

Take a deep breath; you have options that will enable you to avoid repossession.

Pros and cons of a 401(k) hardship withdrawal

Some people in Texas who are struggling with debt might be able to use a 401(k) hardship withdrawal. Only certain types of 401(k) plans allow this type of withdrawal, and it can be used only for specific types of expenses. 401(k) hardship withdrawals can be used for funeral or burial expenses, payments that prevent foreclosure or eviction, repairs for some types of home damage, a new primary residence or medical bills.

This type of withdrawal comes with other limits. A person can only take out enough to pay the specific expense. Furthermore, people can only withdraw the amount they have contributed and not returns. An employer must approve a hardship withdrawal, but the IRS will not ask for additional proof. However, eligibility for a 401(k) loan or access to other funds means the employer is supposed to deny the request.

Americans get debt for the holidays

People in Texas might be in for some post-holiday buyer's remorse when they see their incoming credit card statements. Overall, Americans spent a lot during the 2017 holiday season, and many of their purchases were charged. A recent MagnifyMoney study claims that the average American consumer put themselves a little more than $1,000 in debt due to holiday spending. Furthermore, many of those people expect paying off that debt to be a slow process.

MagnifyMoney's annual post-holiday survey for 2017 concludes that holiday spending was up 5 percent from the previous year. About half of the people surveyed said they expect to pay off their holiday debt, an average of $1,054, in three months or less. Roughly 30 percent said they will probably need at least five months to pay it off.

Credit card debt is on the rise

Many families in Texas struggle with credit card debt. Across the U.S., Americans owe about $905 billion in credit card debt. That works out to around $15,654 per household. While this seems like a lot, other debts are even worse. The total amounts owed on mortgages, car loans and student loans are in the trillions.

The credit card debt levels faced by consumers in the U.S. continues to rise. One reason for this is that more people are putting medical expenses on their credit cards. According to the Bureau of Labor Statistics, medical costs have gone up 34 percent over the last 10 years while income has grown only around 20 percent. An estimated 27 million adults have resorted to credit cards to pay their medical bills.

Chapter 13 processes

Many people living in Texas struggle to pay their bills. While some financial difficulties are temporary, other individuals and families find it impossible to catch up. In these cases, bankruptcy may be an appropriate option.

There are two primary kinds of consumer bankruptcy in the United States. In Chapter 7, a debtor liquidates his or her assets for distribution to creditors, after which the court clears all remaining dischargeable debt. The other option is Chapter 13, in which the debtor may keep some assets but enters into a long-term debt repayment plan. At the conclusion of the plan, the court discharges any remaining debt.

Woman allegedly lied to bankruptcy court in Chapter 7 case

When Texas residents or others file for bankruptcy, they generally must disclose all of their assets. One woman who failed to disclose that she had $3,500 of cash on hand had her Chapter 7 discharge blocked. The woman said that she didn't disclose the cash as an asset because she needed it to pay rent and other expenses. After hearing this, the bankruptcy trustee argued that the woman had lied under oath.

Furthermore, the court found that the woman had an understanding of what cash was. By failing to admit that she had $3,500, it was found that the debtor intentionally hindered the ability of creditors to receive payment. A judge from the U.S. Bankruptcy Court for the Central District of Illinois agreed with this assessment. However, the woman's attorney did get some of the blame for failing to make her aware of how serious the action was.

Can you use the wildcard exemption when you file Chapter 7?

If you are preparing to file for bankruptcy, you are also probably worrying about which assets you can keep and which you will lose. Exemptions are key, and Texas provides filers with some of the most generous exemptions in the nation.

Among these is the so-called wildcard exemption that prevents the bankruptcy trustee from seizing certain nonexempt assets.

Buying a home after bankruptcy

Texas residents and others who file for bankruptcy may believe that they have no chance of buying a home. However, this is not necessarily the case. For many, the biggest obstacle standing in their way of home ownership is time. In some cases, a person may need to wait four years after the date that their case is resolved before they can buy a home. A minimum two-year wait is imposed by Fannie Mae while a minimum one-year wait is imposed by the FHA.

The length of time a person must wait may depend on the type of loan and bankruptcy being sought. Typically, lenders look favorably on those who filed for Chapter 13 bankruptcy as opposed to Chapter 7 bankruptcy. This is because those who have filed for Chapter 13 are making an effort to repay their debts.

Coping with the financial fallout of a natural disaster

Texas residents who have been impacted by natural disasters may accumulate debt while trying to cope with the aftermath. As simply paying for food and a hotel room after fleeing from home can cost hundreds of dollars a day, the expenses could be tough to manage. Those who have accumulated debt in a disaster might want to talk to their creditors about special payment arrangements.

While not all creditors will be willing to work with a debtor, they may do so if that person is persistent. If a deal is worked out, a debtor should be clear about the terms of the deal and how it may impact his or her finances. Talking to a credit counselor may also be an effective tip for those who are looking for ways to pay down disaster debt. In some cases, Chapter 7 bankruptcy is an option for those who can't pay debts in a reasonable amount of time.