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Bankruptcy in Texas, Part 1

Chapter 7 requires means test


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Misconceptions about bankruptcy


If you are considering filing for bankruptcy, you probably have many questions–and deservedly so. For many people, the image of someone who “goes bankrupt” invokes spectres of deadbeats and ne’er do wells.

For other people, the image of someone who files for bankruptcy protection is at the opposite end of the spectrum, namely winners, that is, those who keep their mansions, fancy cars, etc.–in other words "winners" who game the system in order to protect vast personal wealth at the expense of others, which in some cases could be taxpayers, although usually it’s any number of investors, bond-holders, or hedge funds who wind up directly on the short side of a real player’s stick (obviously, that ripples through the economy–don’t get me wrong).

In that category, Donald Trump comes to mind.

Truth is, bankruptcy code designed for honest, second-chance


But the reality is this: the U.S. Bankruptcy Code is designed neither for losers nor for schemers. The code is designed for stand-up, honest citizens who need a break, who deserve a way to hit the “reset button.” We in the United States of America long ago resolved to spurn the “Old World” model of debtors’ prisons, in favor of a much more sympathetic and business-minded model that keeps people in their homes and with their jobs–those hard-working, civic-minded people who venture out everyday to work and pay sales tax and payroll tax and local and community taxes.

Not to mention buyers of local goods and services. However, sometimes circumstances dictate that you can no longer afford services, and maybe not even local goods. When it’s that tight? If you’re buying groceries or paying rent or other regular bills with credit cards or borrowed money? That’s a big, red flag indicating that your credit rating may be already in the tank. So the scare stories about bankruptcy ruining your credit rating are simply more propaganda from the Big Banks and their subsidiary credit-card companies. In other words, by the time bankruptcy is a serious consideration for most people, their credit is already badly damaged. It very well could be that starting over under protection of the bankruptcy court is the simplest, most efficient route to rebuilding good credit and living debt free.

Texas' four district courts


Filing for bankruptcy in Texas requires you/your attorney to interact with one of the three, federal bankruptcy courts in the state:

Effects of BAPCPA, the ‘reform’ act of 2005


Under intense pressure from credit-card companies (and the banks that own them) and their lobbyists for about five years of hard-corner, back-room negotiations, Congress in 2005 passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), designed to make it more difficult for consumers to file for bankruptcy protection. The idea was to make it tougher for individuals to file Chapter 7 (so-called “liquidation bankruptcy”), steering them toward Chapter 13 (so-called “reorganization bankruptcy”).

Trustees and the ‘means test’


According to the Justice Department’s BAPCPA page, the act gave “the U.S. Trustee Program new responsibilities in a number of areas, including:

  • implementing the new “means test” to determine whether a debtor is eligible for chapter 7 (liquidation) or must file under chapter 13 (wage-earner repayment plan);

  • supervising random audits and targeted audits to determine whether a chapter 7 debtor’s bankruptcy documents are accurate;

  • certifying entities to provide the credit counseling that an individual must receive before filing bankruptcy;

  • certifying entities to provide the financial education that an individual must receive before discharging debts; and

  • conducting enhanced oversight in small business chapter 11 reorganization cases.”


Continued in Bankruptcy in Texas, Part 2.

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