Serious debt can become overwhelming, particularly when collection calls, lawsuits, wage concerns, or the possibility of losing property are involved. Bankruptcy may provide a way for qualifying individuals to address debts and obtain financial relief, but filing is a significant legal decision with long term consequences.
Bankruptcy cases are governed primarily by federal law. For people filing in Texas, however, Texas law can also be important because state exemption laws may determine which property can be protected during the bankruptcy process.
The Lawyer Referral Service of Central Texas can help connect individuals facing significant financial difficulties with a bankruptcy attorney who can evaluate their circumstances and explain the available options.
What Is Bankruptcy?
Bankruptcy is a federal court process that allows individuals and businesses to address debts under the protections and requirements of the U.S. Bankruptcy Code. One important purpose of bankruptcy is to provide qualifying individual debtors with a financial fresh start, although not every debt can be eliminated.
Most bankruptcy cases begin voluntarily when a debtor files a petition with the bankruptcy court. In limited situations, creditors may initiate an involuntary bankruptcy proceeding against a debtor. Involuntary cases are permitted only under Chapter 7 or Chapter 11 and are subject to specific requirements concerning the number of creditors, the nature of their claims, and the amount owed. They are not simply a process through which one creditor can automatically force someone into bankruptcy.
For individuals struggling with consumer debt, Chapter 7 and Chapter 13 are two of the most common forms of bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 is commonly known as liquidation bankruptcy. After a case is filed, a bankruptcy trustee reviews the debtor’s property and financial information. Property that is not protected by an applicable exemption may be sold, with the proceeds distributed to creditors according to federal bankruptcy law.
That does not mean every Chapter 7 debtor loses property. Many Chapter 7 cases are considered no-asset cases because there is no nonexempt property available for distribution to unsecured creditors.
Texas exemption laws can provide substantial protection for qualifying property. Texas law protects certain homestead interests from many creditor claims and provides exemptions for specified personal property. Current Texas law generally provides a personal-property exemption of up to $100,000 in aggregate fair market value for a family and $50,000 for a single adult who is not part of a family, subject to the categories and limitations established by statute.
Texas residents may also have a choice between Texas and federal bankruptcy exemptions, although federal domicile requirements and individual circumstances can affect which exemptions are available. Determining which exemption system is more advantageous can be an important part of bankruptcy planning.
Individuals with primarily consumer debts may also have to satisfy the Chapter 7 means test. Income, household circumstances, and allowable expenses can affect whether a filing is presumed to be an abuse of Chapter 7.
If the debtor qualifies and successfully completes the case, many unsecured debts may be discharged. A discharge generally eliminates the debtor’s personal liability for qualifying debts, but certain obligations, including some taxes, domestic support obligations, and most government-backed student loans, generally are not discharged. Valid liens may also survive bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 is designed for individuals with regular income who can make payments under a court-approved repayment plan. Instead of liquidating nonexempt property in the same manner as Chapter 7, the debtor generally keeps property while making payments to a trustee over a period of three to five years.
Chapter 13 can be particularly useful for someone who has fallen behind on secured obligations, such as a home mortgage, and wants an opportunity to catch up while protecting the property from immediate collection activity.
Eligibility is subject to debt limits. As of 2026, an individual generally must have less than $526,700 in unsecured debt and less than $1,580,125 in secured debt when filing for Chapter 13 relief.
The debtor must also have sufficient income to make the required plan payments while meeting ongoing financial obligations. A discharge generally occurs after the debtor successfully completes the repayment plan and satisfies the other requirements imposed by bankruptcy law.
Bankruptcy and Collection Activity
Filing a bankruptcy petition generally triggers an automatic stay. The stay prevents many creditors from beginning or continuing collection activity while the bankruptcy case is pending.
Depending on the circumstances, the automatic stay may stop collection lawsuits, garnishments, and certain foreclosure or repossession efforts. It does not apply in every situation, and creditors may sometimes ask the bankruptcy court for permission to proceed.
The automatic stay is different from a discharge. The stay generally provides protection while the case is pending, while a discharge permanently eliminates personal liability for debts that qualify for discharge.
How a Bankruptcy Lawyer Can Help
Bankruptcy attorneys can represent both debtors and creditors. For someone considering bankruptcy, an attorney can review income, debts, property, exemptions, and financial goals to determine whether Chapter 7, Chapter 13, or another approach may be appropriate.
An attorney can also prepare and review bankruptcy filings, address questions from the trustee, respond to creditor disputes, evaluate secured debts, and represent the client when motions or other contested issues require court involvement.
Accurate financial disclosure is critical in any bankruptcy case. Debtors are required to provide extensive information about their income, assets, debts, expenses, and recent financial transactions. Attempting to hide property, transfer assets improperly, or provide false information can jeopardize a discharge and may result in serious legal consequences. Federal courts specifically identify fraudulent transfers, concealment of property, and bankruptcy-related perjury as potential grounds for denying a Chapter 7 discharge.
Finding Bankruptcy Help in Central Texas
Bankruptcy can provide meaningful relief from overwhelming debt, but it is not the right solution for everyone. The consequences depend on the type of debt involved, a person’s income and assets, available exemptions, and their financial goals.
If you are considering bankruptcy or are facing serious collection problems, the Lawyer Referral Service of Central Texas can help connect you with a bankruptcy attorney who can review your circumstances and explain the options available under federal bankruptcy law and applicable Texas law.
