Generally speaking, Chapter 13 bankruptcy gives debtors the right to modify their mortgages by dividing the debt into a secured portion that is equivalent to the value of the property if it were to be sold today and a portion that is considered unsecure. However, this bifurcation usually occurs with properties that are not the primary residence of the creditor, such as a second home or an investment property. For example, a person living in Texas and filing for Chapter 13 bankruptcy might have to forego their summer home but not their primary home.
Many Houston residents are struggling with high debt levels. In many cases, these folks may want to do the right thing and meet their obligations to creditors. For those who are employed and have retirement accounts, borrowing from a 401(k) may be a tempting debt management strategy.
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.
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.
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.
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.
Older Americans in Texas and throughout the country are filing for bankruptcy more often than they have in past years. Individuals between the ages of 65 and 74 comprise 8 percent of all bankruptcy filings. This is an increase of 1 percent since 2008, and many people in this age group are filing because of medical debt. In addition to higher health care costs, a lack of financial literacy may also play a role in whether an older person files for bankruptcy.
Texas residents who make contributions to a 401(k) plan can generally claim those deductions as expenses when filing for Chapter 13 bankruptcy. A trustee in one case claimed that a debtor needs to make contributions in the six months proceeding bankruptcy for them to count as a valid expense when calculating disposable income. However, an Illinois bankruptcy judge disagreed saying that the debtors in question were not doing so as an act of bad faith.
Some consumers in Texas may be contacted by collectors of what is known as "phantom debt." This term is used to describe debt that is either already paid off or never belonged to the person. According to the Consumer Financial Protection Bureau, in 2016, more than 40 percent of the complaints received about debt collection were about debt the consumer did not owe in the first place.
Bankruptcy filings fell 1.8 percent for the latest 12-month period ending on Sept. 30. This marks a 10-year low in filings. Overall, Texas residents and others across the U.S. filed for bankruptcy 790,830 times in September 2017 compared to 805,580 in September 2016. While the number of bankruptcy filings has dropped, those who study the issue say that many people are still in a precarious financial situation.