Pros and Cons of Filing Bankruptcy in Texas

Filing for bankruptcy is one of the most challenging decisions a person can make. If you’re struggling with overwhelming debt, it’s important to carefully weigh the pros and cons of filing bankruptcy. Bankruptcy laws are complex and can have long-term financial and personal consequences.

As a bankruptcy lawyer and co-founder of Warren & Migliaccio, L.L.P., I have helped countless clients navigate bankruptcy proceedings. We specialize in Chapter 7 and Chapter 13 bankruptcy filings, the two most common types of bankruptcy. Our team has years of experience helping individuals and families in Texas get back on their feet.

Pros of Filing for Bankruptcy

When considering bankruptcy, the potential benefits can often outweigh the drawbacks. Here are three significant advantages to filing for bankruptcy in Texas.

1. Debt Discharge or Reduction

The most obvious benefit of filing for bankruptcy is the ability to discharge or reduce your debts. In Chapter 7 bankruptcy, most unsecured debts, such as credit card debt, medical bills, and personal loans, can be completely wiped out. Chapter 7 is ideal for individuals with little or no assets, as it allows you to start fresh by eliminating many of your financial obligations.

In Chapter 13 bankruptcy, you enter a repayment plan but still benefit from the possibility of reducing unsecured debts. Chapter 13 allows you to reorganize your debt and pay it off over 3 to 5 years. Often, your payments are adjusted based on your ability to pay, which can reduce the total amount you owe.

Filing for bankruptcy helps eliminate the stress of constant collection calls from debt collectors, late fees, and the pressure of being unable to make ends meet.”

2. Protection from Creditor Actions (Automatic Stay)

When you file for bankruptcy in Texas, an automatic stay is immediately put in place. This stops most collection actions, including wage garnishments, foreclosure, repossession, and creditor lawsuits. It gives you breathing room by halting aggressive actions from creditors.

For example, if you’re behind on mortgage payments and facing foreclosure, filing for Chapter 13 bankruptcy can prevent your home from being taken. Chapter 13 allows you to catch up on overdue mortgage payments and make manageable monthly payments during your payment plan.

This protection is one of bankruptcy’s most beneficial aspects. It provides temporary relief, allowing you to get back on your feet without fearing losing property or income.

3. A Fresh Start and Financial Rebuilding

One of the greatest advantages of bankruptcy is the opportunity for a fresh start. Once your bankruptcy case is completed, you will no longer carry the burden of overwhelming debts. The liabilities that once felt insurmountable will no longer weigh you down. Bankruptcy gives you a chance to rebuild your financial life. It allows you to control your finances without the weight of past misfortunes.

After your debts are discharged or reorganized, you can begin the bankruptcy process of rebuilding your credit. Your credit score may drop temporarily after filing for bankruptcy. However, it will improve over time as you show responsible financial behavior. Many people start rebuilding their credit within a few years by paying bills on time, reducing debt, and managing credit wisely.

Cons of Filing for Bankruptcy

Although bankruptcy provides many benefits, it also comes with its own set of challenges and drawbacks. Understanding the potential downsides before deciding whether bankruptcy is right for you is important.

1. Impact on Your Credit Score

One of the most significant disadvantages of bankruptcy is its negative impact on your credit score. While bankruptcy provides debt relief, it will stay on your credit report for several years, making it more difficult to secure loans from lenders in the short term. For a Chapter 7 bankruptcy, it will remain on your credit report for up to 10 years, which can affect your ability to qualify as a borrower for new loans.

This can make qualifying for loans, credit cards, and mortgages more difficult in the short term. However, it’s important to keep in mind that rebuilding your credit after bankruptcy is possible. Many people find that they can improve their credit score over time by demonstrating good financial habits.

Additionally, bankruptcy will not affect all types of credit equally. For example, getting a secured credit card or car loan may still be possible after bankruptcy. However, these may come with higher interest rates.

2. Loss of Certain Assets (Chapter 7)

While Chapter 7 bankruptcy offers the benefit of debt discharge, there is a possibility that you could lose certain assets. In a Chapter 7 case, a bankruptcy trustee may sell non-exempt property to pay creditors. The good news is that Texas bankruptcy laws offer a variety of exemptions. They protect your property, such as certain personal property and retirement accounts.

However, if you have non-exempt assets, you may lose them during liquidation. For example, if you own valuable property that is not protected under Texas exemptions, the trustee may sell it to satisfy your debts. Chapter 13 bankruptcy, on the other hand, does not involve liquidation, but it requires you to pay off a portion of your debts through a plan approved by bankruptcy court.

The potential loss of property is a serious consideration for individuals who own valuable assets and want to protect them.

3. Bankruptcy Doesn’t Discharge All Debts

While bankruptcy can cut many types of debt, there are some debts that cannot be discharged through either. These debts include:

• Federal student loans (except in rare cases of undue hardship)
• Child support and spousal maintenance (alimony)
• Tax debts owed to the IRS (with some exceptions)
• Criminal fines and restitution
• Debts incurred through fraud or misrepresentation

Additionally, while bankruptcy can help you reorganize your debt, it does not cut obligations like your mortgage or car loan. If you’re filing Chapter 13, you’ll still need to make regular payments on these secured debts. You will also need to adhere to the repayment plan, which can last several years.

Is Bankruptcy the Right Choice for You? Navigating Pros and Cons of Filing for Bankruptcy

Based on your unique financial situation, deciding whether to file for bankruptcy in Texas is a personal choice. Consulting a credit counselor can offer valuable insights into your options. Personal bankruptcy or debt consolidation can provide relief and help you regain control of your financial future. However, it’s crucial to weigh both the pros and cons before making a decision.

If you’re considering bankruptcy, working with a bankruptcy attorney or seeking credit counseling can help you navigate the process. At Warren & Migliaccio, L.L.P., we have years of experience guiding individuals and families through Chapter 7 and Chapter 13 bankruptcy cases. We can help you understand the potential benefits and drawbacks of filing for bankruptcy in Texas and work with you to develop a strategy that aligns with your goals.

Key Considerations When Filing for Bankruptcy in Texas

Filing for bankruptcy or engaging in debt management is a serious decision, but it can provide a fresh start with the right guidance. Don’t hesitate to reach out to Warren & Migliaccio, L.L.P. for legal advice tailored to your financial situation.

Whether it’s Chapter 7 or Chapter 13, we’ll help you understand your options and develop a plan that aligns with your financial goals. Call us at (888) 584-9614 or contact us online for a free consultation. Take the first step toward reclaiming control over your finances.