Bankruptcy FAQs

Frequently Asked Questions And Answers About Bankruptcy

Bankruptcy laws provide extraordinary protection and relief. Everyone is still eligible to file!

1. I heard the Bankruptcy Laws changed in 2005, so almost nobody is eligible to file a Chapter 7, right?

WRONG. A common misconception is that after the law changed in 2005, very few people are eligible to file Chapter 7. That is simply not true. Pelley Law Office, L.L.P., recently did a study comparing whether the percentage of Chapter 7s versus Chapter 13s we have filed since 2005 has significantly decreased. It has not. To the contrary, the percentage of 7s versus 13s we have filed has remained about the same!

2. If I do file a Chapter 13, then I pay back most (if not all) of my credit card debt, right?

WRONG. Another misconception is that if you do file a Chapter 13 bankruptcy, you always pay back your credit card or other similar unsecured non-priority debt. To the contrary, that is rarely the case.

3. What is the minimum amount of credit card debt I need to file a bankruptcy?

There is no minimum. However, if you have $30,000.00 worth of credit card debt and your credit cards are averaging 25 percent interest rates, then that is costing you $7,500.00 per year in interest alone. If you owe $40,000.00 of credit card debt at 25 percent, then you are being charged approximately $833.33 per month in interest! That means if you pay $850.00 per month to your credit cards, your total amount of credit card indebtedness is reduced approximately only $16.67 (and much of that $16.67 is probably being eaten up by over the limit fees and late payment penalties).

4. Will I lose my house?

Bankruptcy rules are designed to help you retain your property if that is your desire. In order to do so, there are certain requirements. Typically, you have to resume making the payments on your house beginning with the first payment that comes due after you file the bankruptcy. If you are behind on your house, Chapter 13 can help you get caught up. If you are current and stay current on your house, then either Chapter 7 or Chapter 13 will still allow you to retain your exempt homestead.

5. Will I lose my cars?

Like your home, the bankruptcy process is designed to help you keep the vehicles necessary for your family. Again, either Chapter 7 or Chapter 13 will provide the necessary protection so that you can retain the cars required to maintain your family needs. These are amongst the issues that we will specifically discuss in order to help you make the best choice.

6. What is the effect on my credit?

Proper utilization of the bankruptcy code will help you re-establish your credit very quickly. We will council you on how to rehabilitate your credit at the free initial consultation.

7. Will I ever be able to buy a house or a car again if I file a bankruptcy?

While it varies for each individual, our experience has been that financing is typically made available for the purchase of a new home or a new car soon after the bankruptcy is complete.

In fact, new vehicles are frequently acquired during the course of a normal bankruptcy.

8. Does Pelley Law Office, L.L.P., accept payment plans?

Yes. We understand you are having financial difficulties. That is the reason we provide a free initial consultation. We will discuss payment options at the free initial consultation. In almost all cases, once you quit paying the creditors you want to discharge, you will have more than enough money to file your bankruptcy. It is and extremely inexpensive procedure.

9. What if I want to pay some creditors and discharge others?

The bankruptcy code requires full disclosure. As long as you make full disclosure, the bankruptcy code allows you a great deal of latitude to pick and choose which creditors you pay. We will discuss each creditor individually. Typically, in a Chapter 7 you are not prohibited from paying anyone that you wish to pay. They are prohibited from collecting from you. In a Chapter 13, we will put together a plan reflecting those creditors that you wish to pay and ask the Court to approve that plan.

10. When will the telephone calls stop?

Immediately after the filing of the bankruptcy, the bankruptcy clerk notifies all of the creditors that you have listed. Upon the receipt of that notice, those creditors are bound by the Bankruptcy Code to cease all communication with you. They cannot sue you, call you, foreclose on your house, repossess any items from you, garnish any wages or take any other legal action.

In addition, if there are specific creditors that are harassing you in an extraordinary way, we will contact them for you immediately upon the filing of the bankruptcy, notify them of your case number and advise them that they are to cease and desist all activities.

11. What happens when I file the bankruptcy?

Immediately upon filing the bankruptcy, an automatic stay goes into effect. That means that no creditor can take any further action against you. That includes a foreclosure on your home, garnishment by the IRS, repossession of your vehicle, or the prosecution of a lawsuit or any other claim against you. No further telephone calls should be made to you, to your work, to your family, or to your friends.

12. Will I have to go to Court?

Court appearances vary for each individual. Typically, in a Chapter 7 bankruptcy you will have one informal hearing in front of a Trustee. The Trustee is not a judge. While the hearing before the Trustee is informal, it is “on the record.” As such, an attorney will be there to represent you.

An individual in a Chapter 13 bankruptcy will also have to go to a First Meeting of Creditors. It is also informal and will be in front of a Standing Chapter 13 Trustee.

An individual who files under either Chapter 7 or Chapter 13 may be required to have additional Court hearings. Those are not always possible to predict in advance. But, if you need to go, we will typically give you at least twenty days notice and you may rest assured that we will be there to represent you.

13. Will I lose all of my assets?

Both the Bankruptcy Code and the Texas Property Code have exemption statutes that are designed to help people protect their home, their car, their furniture, furnishing, clothing and personal effects. In addition, most clients qualify for a “wild card” exemption under the federal list of exemptions, which allows them to retain assets that would otherwise be non-exempt under the Texas Property Code. Normally, most debtors are not required to lose any property that they do not otherwise wish to voluntarily abandon. We will discuss both exemption statutes with you and help you choose the statute that is most beneficial to you.

14. What am I required to do?

You are under no commitment by meeting with us. We ask that you contact our office, set up an appointment and bring with you a complete list of every one you owe and approximately how much you owe them. We will also need to discuss your assets so that we can best protect them.

At the initial consultation, we will discuss our fee with you and a payment plan for you. If you decide to employ us at that point, then we will request that you complete a set of forms. We will go over the forms with you in detail. You will then be required to attend a “Meeting of Creditors”. This typically is the only appearance that you will need to make. That hearing normally lasts no more than three to ten minutes. It is unusual for any creditors to appear. Normally, only the Trustee, you, and an attorney will be present.

15. How do I pay if I am broke?

Since we have practiced in this area for over thirty five years, we understand the difficulties in paying attorney’s fees. We are happy to work with you. The attorneys fees in bankruptcy are extremely low in comparison to other types of legal fees. We will discuss payment options with you at the free initial consultation. You will not be required to come up with a large sum of money all at once unless that is your desire and in your best interest. In addition, since you will no longer have your normal obligations, most people are able to pay us out over a short period of time.

16. My house is up for foreclosure. How long can I wait to decide?

Do not wait. Since there is absolutely no charge for your first consultation with us, it is pointless to wait. Come see us immediately so that we can explain your alternatives and you can choose the option that is best for you. If you wait too long, it may be too late to stop the foreclosure or to stop the repossession.

17. If they have already repossessed my vehicle, is it too late to save it?

No. One of the great advantages of a Chapter 13 is that if you act immediately after your vehicle is repossessed, the Bankruptcy Code normally will require the creditor to return the vehicle to you. In a Chapter 13, you can then make arrangements to either pay the arrearage on the vehicle, repay the debt on the vehicle, or the value of the vehicle, whichever is most advantageous to you. However, if you wait and the vehicle is sold by the creditor after they have repossessed the vehicle, then it will then be too late to regain possession of your vehicle.

We are often able to allow you to pay the value of the vehicle rather than the full amount of the debt. This normally results in a substantial reduction in your monthly payment on your vehicle.

18. What are the differences between Chapter 7 and Chapter 13?

A Chapter 7 bankruptcy is typically the chapter that we recommend if you are qualified. We do that because Chapter 7 is the quickest, the cheapest and does the most for you. In a Chapter 7 bankruptcy, we normally file your bankruptcy and have your trustee meeting within 30 to 45 days. Typically, you will receive a discharge within 60 days after that meeting and you will be out of bankruptcy. In a Chapter 7, you must remain current on your payments on your vehicles and your house if you wish to retain them.

A Chapter 13 bankruptcy is different in that it is designed for people who are: (1) behind on their house and their property is about to be foreclosed upon; or (2) behind on their vehicles and their cars are about to be repossessed. It is also designed for people who are behind to the IRS, or those who simply make too much money each month to remain in Chapter 7. Chapter 13 has many advantages. For instance, we are often able to substantially reduce your payments on your vehicles. However, either chapter will typically allow you to discharge unsecured debts.

Our job during our initial and any subsequent consultations with you is to discuss the advantages and disadvantages of each chapter, to make recommendations to you and then to try to accomplish a successful plan of action so that we can achieve your desired goals. The primary goal is to help you obtain a fresh financial start.

19. Is bankruptcy better than going through a debt repayment program?

Yes, for several reasons. First, in a Chapter 13 plan, the Court will force your unsecured creditors to accept the plan even if you are paying them a very small percentage or making absolutely no payments toward their actual claim. A private service has no such power. In addition, once you file the bankruptcy, none of your creditors may file suit or take any further action against you. A private service has no power to stop any one individual creditor from taking such action. Further, in a Chapter 13, all interest stops on unsecured debt. That means the debt will no longer continue to grow. Best of all, at the conclusion of the typical Chapter 13 plan, not only has the interest been removed, the underlying debt will have been discharged as well.

20. If I have filed a bankruptcy before, can I file again?

Yes.

21. Can you reduce my monthly payments on my car?

Normally, yes, in a Chapter 13. In a Chapter 7, usually you continue to make the regular payments on your car.

22. The IRS is charging me an arm and a leg in interest and penalties, will a bankruptcy help?

Absolutely. Normally all interest stops immediately upon the filing of a bankruptcy. We can usually remove the penalty that has previously been assessed in a Chapter 13.

23. I am thinking about paying one of my credit cards $500.00 to $1,000.00 before I come in for my free initial consultation, should I?

No. That would probably constitute a preference. The Trustee would then require the creditor to turn over the money to the Trustee. You would still owe the debt despite having made the payment.

24. I have been served with a lawsuit, what should I do?

Call the office for an appointment immediately. The bankruptcy will normally stop all litigation.

25. I am getting conflicting information on the Internet about bankruptcy, what should I do?

Ask an attorney that practices bankruptcy law every day at a free initial consultation, and do not believe the myths on the Internet.

26. Will it ruin my parents’/wife’s/husband’s/brother’s/sister’s/son’s/daughter’s/friend’s/uncle’s credit if I file bankruptcy?

No.

27. If I file the bankruptcy, will I keep paying my creditors?

Typically, only those you want to keep. Frankly, once you quit paying the creditors you want to discharge, in most cases you will have more than enough money to file your bankruptcy.

28. Is my name going to be in the newspaper if I file a bankruptcy?

None of the local newspapers have reported filings for the last several years.

29. Are they going to take my parents/children’s property away from them?

No.

30. When will I get another credit card?

As a general rule, you should start receiving credit card solicitations within two months after you file the bankruptcy.

31. Will somebody come to my house and look at my assets?

While this is possible, it almost never occurs.

32. Should I cash in my IRA/401(k) account in an attempt to avoid having to avoid filing bankruptcy?

No. If you do, it will most probably cause a very large tax liability on your part and it may detrimentally affect a subsequent bankruptcy.

The point of bankruptcy is to give you a fresh start financially. We can save all of your retirement money that qualifies under the IRS’s requirements for you. We will discuss that in advance. Please call us before wasting your life long savings.

Client Testimonials

We were referred to the Pelley Law Firm by our financial advisor. What good advice that turned out to be. From the business office to the paralegals (Sarah was ours) and all the attorneys (Richard and Quinton) we were treated great. We were shown respect and understanding during our time of financial stress. And they solved our problem. They kept us up to date and informed about everything that was going on. The end result was just what we needed to continue on with our life with much less stress. There is no doubt that given the chance we will easily refer The Pelley Group at every opportunity. They did us a great service. So thanks all of you at the law firm. - B. M.
We had gone to several different lawyers. After talking to us for only two minutes, they all said the same thing - that they didn't see how we could qualify for a Chapter 7 bankruptcy. They did not listen to us or to the details of our situation. So...we were depressed and in despair when we walked into the Pelley Law Office. We had gone through a lot of life changes and we weren't able to keep up with everything. But as soon as we sat down in their waiting area, they came out of their offices and talked to us. They listened. They made us feel welcome and gave us hope. Even before getting out of the waiting area, they described options and solutions that eased our fears. As soon as we signed up for their services, Pelley's team took complete control of our situation. I vividly remember Sarah telling us that, "You no longer have to worry about anything. That's our job now." And she was right. She had complete mastery of the process. She explained each step along the way. She looked at every detail in our life and agreed (where others didn't) that a Chapter 7 bankruptcy was indeed the best solution. She was extremely patient with our anxiety and our repeated questions. She even showed up with Mr. Pelley to comfort us at our hearing. We highly recommend Pelley Law Office. They went out of their way to work for us and to help us. They respected us and didn't make us feel bad for the situation we were in. They fought for us not the corporations. They gave us our lives back. Thanks so much!- C.A. & T.A.

I am very pleased to endorse the law office of Mr. Pelley. Mr. Pelley and his team of professionals were instrumental in giving me a peace of mind that had been absent in my household for 10 years. My bankruptcy case was a bit of a challenge in that I have a high income and my home property is paid for. I was overlooked by 3 other law offices before seeing Mr. Pelley. I was immediately impressed with his professionalism and confidence while we presented our case to him. In a matter of 15 minutes he presented an outline of steps his team and I were going to take in order to resolve my issue. He was open about possible alternatives in the event our first option didn't materialize. It was a learning experience that was made much easier by the talent of professionals that work with Mr. Pelley. Our cased proceeded just as Mr. Pelley outlined it in that first meeting. I am forever thankful for his guidance and professionalism. I wouldn't hesitate to recommend the offices of Mr. Pelley to my family and friends...- J.G.

Legal Issue? I don't have one, very much due to a role played by a certain Mr. Quinton Pelley, Esq. It has been five years, a month and a few days since an event took place in my life that no one, to this day has understood, myself included.The family that Lord has given me does not often speak of you, Quinton, but when we do, we speak of you fondly. Much has changed since we first, all for the better...- P.R.
I've been very impressed with the level of professionalism provided by Pelley Law Office. I've not only received expert legal advice, but the entire staff has also treated me with dignity and respect. I've especially appreciated the prompt responses I've received from Christy Layer, a paralegal with the firm, whenever I've had questions. She's always there to help. Obviously, no one wants to face bankruptcy, but if it happens, Rick Pelley is the one to call.- B.L.
YOU ARE THE MAN!C.S.
We're so thankful to Pelley for making a very painful decision a little easier to bear. We're so happy to have a fresh start! Thanks again for everything!GL

From a Mother & Father – Thank you for taking care of our son in court. He was visibly shaking when the other side showed up today. Until that point he was doing just fine. You took him under your wing and protected him and his son. There are no words to express our gratitude. - C.K. & S. K

We were new to Texas and in a difficult financial position. We were embarrassed to have to make the decision to file bankruptcy, however it was necessary. We met with the attorney at Pelley Law and knew we had found the people who were going to help us through this trying time. Our attorney was available to us and explained the process step by step so that there were never any surprises. Our Paralegal was awesome! Sarah was responsive to our many emails and questions and did not ever make us feel like we were a bother. They even went above and beyond to helped us complete the sale on our home in California. They did not have to do that, but they did and they did it effectively and efficiently. I could not recommend a better law firm.-G.J.
Thank you Quinton! You're the best attorney I know!-A.C.

A former spouse tried to have our client arrested by falsely claiming he molested their daughter during the marriage in order to gain full custody of their child and to prevent him from having access to the child. We not only avoided the criminal prosecution, but also gained the father possession and access to his minor daughter through the family law court. - A.V.

This was an Attorney General Child support case where the father, a disabled veteran, owed in excess of $25,000 plus penalties and interest in back child support. At the hearing, delinquent support was reduced by over $12,000 and all penalties and interest were vacated. Reasonable payments toward the delinquency within the father's budget were set.- J.O.
From a Mother & Father - Thank you for taking care of our son in court. He was visibly shaking when the other side showed up today. Until that point he was doing just fine. You took him under your wing and protected him and his son. There are no words to express our gratitude.-B.D.R.

Our client ceased payments of agreed spousal support upon remarriage of his ex-spouse. Following another argument, the ex-spouse filed a Motion for Enforcement. At trial, the Court requested briefs that both parties provided to the Court. The Court ruled that the spousal support was unenforceable. The ex-spouse appealed, and that Court requested additional briefs. The appeals court ruled in favor of our client and ordered the ex-wife to reimburse our client for costs and expenses.R.P.

Note from a Divorce Client -- "Again, I want to thank you so much for your time and work you've put into my case. I have full confidence in Mr. Pelley and want you to know how thankful I am to have put my trust in you."- R.S.
Thank you for getting us through a difficult time. Your assurance and guidance made it more tolerable for us. You are exceptional at trust-building. We truly appreciate all you did for us! - S.B.

This was an incredible case where we won custody for a minor child for a brother over his biological father. The mother of minor female child died leaving the father as the only living conservator. The child wanted to live with his older brother rather than the father. We intervened and requested the Court for primary custody of the child. The father contested and the case was set for trial. Our client (the brother) was appointed sole managing conservator of the child with father's rights and privileges subject to approval of brother and the child.- R.W.

Our client owed in excess of $80K in back child support and a lot of credit card debt. We filed a Chapter 7 bankruptcy for him and the Attorney General's Office failed to file a proof of claim for the child support listed in the bankruptcy. The bankruptcy was completed and the child support claim was discharged. The Attorney General’s office filed multiple motions with the Federal Bankruptcy Court to allow them to proceed with collection efforts against our client. We contested their motions and the Federal Court denied all of their motions. The Attorney General then demanded a trial in State Court. We proceeded to trial in State Court and the Court confirmed that the child support was discharged and our client walked away free and clear of any child support. - D.W.

We saved this client a bunch of money and property after he failed to timely act after finding out his wife filed for divorce. Prior to hiring us, our client failed to file an answer after being served with a Petition for Divorce. The Court entered a default judgment awarding his ex-wife large portions of his share of the community property and 50% of our client’s separate property. Additionally, the Court ordered exorbitant amounts for child support and spousal support. Our Motion for New Trial was granted and the Court vacated all prior orders. - B.M.