When bills overwhelm an individual, bankruptcy might present itself as a legal way out of financial hardship. The process, however, comes with long-term consequences and may not solve all debt problems. In Texas, a person considering bankruptcy can get counseling from nonprofit organizations or consult with an attorney.
Debt counselors will evaluate a person's financial situation to determine if either Chapter 7 or Chapter 13 bankruptcy is a viable option for debt relief. Under Chapter 7, a debtor's non-exempt property is liquidated, with the proceeds used to pay off creditors. Most of the remaining unsecured debt will then be discharged, usually within a few months after the start of the process. Chapter 13 is designed in part for debtors who have a regular source of income and who are thus able to restructure their obligations. Payments are made over a court-approved plan that lasts from three to five years.
If a person qualifies for bankruptcy protection and chooses to file, many financial documents will need to be gathered and submitted to a court. Pay stubs, bank statements and tax returns will be examined by a bankruptcy judge or trustee before final decisions are made. After a bankruptcy, a person can expect to have a poor credit rating for seven to 10 years. Loans, when available, will be given at higher interest rates. Despite this consequence, a bankruptcy could offer someone a fresh start.
People who are overwhelmed by financial obligations may want to speak with an attorney about the advisability of filing for bankruptcy protection. There are several eligibility and other requirements that the attorney can explain while describing alternative forms of debt relief that may be available.