Frequently Asked Questions
What type of debt can a Chapter 7 eliminate?
Credit card debt. Medical bils. Judgments. Negative bank balances. Some types of taxes. Lawsuits. Garnishments. Debts following foreclosures. Debts following repossessions or a voluntary surrender of a vehicle. Payday loans.
What types of debt is generally NOT eliminated by a Chapter 7?
Most student loans Some types of taxes. Domestic support obligations, such as some debts arising from a divorce, spousal support, or child support. Debts from criminal activity, including debts related to drunk driving. Court fines and traffic tickets.
I heard that it is very difficult to qualify for Bankruptcy relief now. Who qualifies?
The passage of Bankruptcy reform in 2005 made bankruptcy more complicated, however, most people still qualify for Chapter 7 Bankruptcy. In most cases, you will be able to eliminate 100% of your debt, while keeping 100% of your property. The changes in the Bankruptcy laws, mean that it is more important than ever to consult with an experienced Bankruptcy attorney to ensure that your particular circumstances justify Bankruptcy and that you will get through the process successfully. This is one of the reasons that we do not believe in 'the quick phone consultation' or the 'rushed meeting with a paralegal.' During your free initial consultation you will meet with an experienced attorney who can answer your question, provide you with the available bankruptcy (or non-bankruptcy) options and determine what solution is best for you. Again, the initial in-person consultation is absolutely free, and without any obligation. We believe in providing our clients with all the information, so that you can make an informed decision on how to proceed.
Will the court take my property if I choose to file for Bankruptcy?
One of the other things to consider is whether you have any property that you could lose due to your Bankruptcy filing. In most cases, we can protect all of your property.
Most types of property that normal people own is "exempt" from seizure; however to be 100% sure you should consult with your Bankruptcy attorney and disclose all of your assets.
What type of Bankruptcy is right for me?
Most consumers will choose between a Chapter 7 or a Chapter 13 bankruptcy. Each type of Bankruptcy is designed to solve a particular type of debt problem.
A Chapter 7 is the traditional Bankruptcy that you commonly think of when you consider Bankruptcy. The Court usually discharges most types of unsecured debt. Most Chapter 7 cases are "no asset" cases, which means that creditors are not paid, unless you have assets that the Court believes to be unnecessary for your post-Bankruptcy life.
A Chapter 7 is a much quicker and easier form of Bankruptcy than a Chapter 13. A Chapter 7 usually is over in three to six months. A Chapter 13 lasts three to five years and you may have to make payments. For most people, a quick financial fresh start in Bankruptcy allows them to start rebuilding their credit as soon as the case is over.
As already discussed above, a Chapter 13 is a more complicated Bankruptcy, but it does afford you options that are not available in a Chapter 7. A Chapter 13 is a "wage earner plan", which means that you will file a plan with the Court to re-organize your financial affairs over the next 3 to 5 years. During this "Chapter 13 plan" you will pay some debts in accordance with your re-organization. This is often a good solution for dealing with non-dischargeable Government debts, fines, student loans, etc. Most often a Chapter 13 is used to prevent foreclosure.
A Chapter 13 is a longer, more expensive form of Bankruptcy but it can be the best solution in a lot of situations. For example, if you are behind on a mortgage payment but can get back on track if you could only catch up over three to five years, a Chapter 13 is the perfect way to save your home from foreclosure. You can also consolidate taxes, car payments and other debt into a plan to spread the payments out over five years. In some cases, we may even be able to eliminate your second mortgage in a Chapter 13.
Also, if you do have property that could be liquidated in a Chapter 7 and you want to keep it, you can pay the amount your creditors would get through liquidation over five years instead of giving up the property. There are other advantages to Chapter 13 – for example, in Washington you can reinstate a driver's license that has been suspended for fines in a Chapter 13, but not a Chapter 7.
What happens to my home if I file a Chapter 7 bankruptcy?
Washington state actually has a generous homestead exemption. Under Washington State law, you can protect up to $125,000 in equity in your home after filing a Chapter 7. If, however, have more equity than $125,000 in equity after deducting various standard costs and fees of sale, the trustee is entitled to go after this excess equity. It is not exempt. And, the trustee could force the sale of your house.
If you believe that you have more than $125,000 in equity in your primary residence, it is important to speak with and experienced Bankruptcy attorney who can determine exactly how much equity might be at risk if you file a Chapter 7.
What about my retirement accounts, my pension (401K), and my IRA?
Will I lose of have to forfeit my retirement savings in a 401K, 403B, IRA or other pension if I file a Bankruptcy? No, almost all retirement accounts are "exempt" from creditors.
What will happen to my household possessions and other personal items?
The overwhelming majority of debtors in Bankruptcy are able to retain all of their household possessions and other personal items, including their furniture, clothing, and personal property. The one primary exception to this rule is if you have items in which a security interest (lien) was properly recorded. For example, you purchased a big screen TV from a retailer who gave you credit and you were making monthly payments on it. If the retailer has a valid security interest that was properly recorded, they could demand that the TV be returned, or you have to agree to continue to make the monthly installment payments.
What happens to my car in Bankruptcy?
If you can continue to make the monthly payments on your home and your car, you should be able to keep them. If you do not want to keep your vehicle, you can surrender it back to the lender in the Bankruptcy, and the debt will be discharged, so you will no longer have to make the payments.
If you still owe money on a vehicle, you must continue to pay on the vehicle if you want to keep it. The lender may require you to reaffirm the contract in the bankruptcy court, which puts you back on the hook for the whole balance, so that if you later stop making payments, they can repossess the vehicle and sue you for the difference. That is why it is very important to talk to our attorneys to see what your options are. In a Chapter 13 Bankruptcy, if you owe significantly more than the car is worth, it may be possible to only pay the amount that the car is worth, rather than the balance on your car note. In a Chapter 7 Bankruptcy, it may be possible to finance your car with a new company at a lower payment. In either case, you should speak to an experienced Bankruptcy attorney to determine the best option for you.
Can I eliminate my student loans in a Bankruptcy?
Student loans are generally "non-dischargeable". It is possible to discharge them. It is simply a very difficult burden to meet. In order to discharge a student loan, you have to show that paying the loan back would be an undue hardship.
Can I eliminate court fines in a Bankruptcy?
Fines from parking tickets, speeding tickets, and criminal fines are not discharged in a Chapter 7 Bankruptcy. They are actually considered punishments and not debts. Additionally, if you owe money from personal injury or wrongful death lawsuit resulting from driving while under the influence of alcohol or drugs, this debt will not be subject to discharge in a Chapter 7 either. You may be able to enter into a payment plan through a Chapter 13 to handle these types of debt.
What about my child support, spousal maintenance, and domestic support obligations?
Domestic support obligations are not subject to a Bankruptcy discharge. The Bankruptcy Code provides specific exclusions for these debts. Domestic support obligations are child support, alimony or spousal maintenance, and debts to other creditors that you were ordered to pay in a divorce proceeding. Washington is a community property state, so any debt that is incurred to support the household while you were married can be collected from either spouse.
Debts resulting from fraud in a Chapter 7 Bankruptcy?
No, If you commit fraud, then the can most likely not be discharged.
What is a Chapter 13 Bankruptcy?
Chapter 13 is a re-organization of your financial affairs that takes the form of a Court-approved repayment plan. The Court protects you while you pay some money back to your creditors through your Chapter 13 Plan, which lasts from 3 to 5 years.
Our office will prepare a case that fits your budget, and you pay a percentage (in most cases a very small percentage) to your creditors for a period of 3 to 5 years, and at the same time receive protection from the Court while you complete your plan.
Chapter 13 offers you options that are not typically available in a Chapter 7 Bankruptcy, and it can be used to do the following:
Stop a foreclosure - helps you get back on track with your mortgage payments after falling behind, and save your house. Strip down liens – cram down how much you owe in principal and interest on your car. In some instances, you may even be able to eliminate the second mortgage off your house! Get your driver's license re-instated- while you pay your fines through your Plan. Child Support – be protected by the Court while you pay back your child support arrears. Taxes – be protected by the Court while you pay off your taxes. File a bankruptcy, even though it has been less than 8 years since you filed a Chapter 7. Student Loans – if your student loans are too large for you to handle right now, we can file a plan that pays them part of the monthly payments. The student loans may not be discharged, but you will be able to get protection and avoid garnishments while you are in the plan, and can buy you time until things turn around for you financially. In some cases, if your professional license has been suspended because of a default in your student loans, the license may be reinstated when your Chapter 13 plan is approved by the court.
Chapter 13 Discharges: Credit cards Medical and dental bills Certain kinds of income taxes Unsecured lines of credit Most Lawsuits Chapter 13 can help you handle, but generally not eliminate: Student loans Fines, traffic tickets Tax Liens, or taxes newer than 3 years old Secured debt owing on cars, houses, jewelry, etc. Debt incurred by fraud Domestic support obligations, like child support and alimony Damages from personal injury or death caused by being under the influence of drugs, alcohol, or other substance, while driving a motor vehicle, boat or airplane. In a Chapter 13 Bankruptcy, you can discharge many kinds of debt, or get protection from the Court while you pay some kinds of creditors back. A discharge means that the Bankruptcy Court issues an order at the end of the case that is sent to all the creditors you owe money to, saying that they can no longer collect any debt that is dischargeable in the case