If you're considering filing bankruptcy, questions may be one of the few things you have plenty of right now. I've tried to anticipate most of them here. Please contact me for a free consultation if you have any others on your mind.
What is bankruptcy?
Bankruptcy is a process through the Federal Court system that enables individuals and businesses to discharge the majority of their debts and get a fresh financial start.
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Why is bankruptcy called a 'protection'?
Bankruptcy is often referred to as a 'protection' because once the bankruptcy case is filed the Bankruptcy Court orders creditors to stop contacting you; this is called the 'automatic stay.' This gives you the much needed break from the incessant and harassing collection calls, letters and lawsuits.
What is Chapter 7 bankruptcy?
A Chapter 7 bankruptcy filing is known as a 'liquidation bankruptcy,' and is the most common form of personal bankruptcy because it is the quickest way to get out of debt. It is designed for individuals without many assets and who generally have lower incomes. It involves a liquidation of a person's non-exempt assets to pay the creditors. (See below for examples of exempt and non-exempt assets).
Who can file a Chapter 7 bankruptcy?
A person (or married couple filing jointly) must pass the “means test,” which compares their average monthly income with the average monthly income of the state in which they live. The purpose of the test is to (1) accurately assess whether the person is actually able to pay their creditors or not, and (2) prevent individuals from abusing the process.
How long does a Chapter 7 bankruptcy take?
Generally, it takes three to six months from filing to closure.
What property do I get to keep if I file bankruptcy?
Washington State and the Federal Government have a list of assets that cannot be used to pay off creditors, which are called “Exempt Assets.” The laws ensure that you are not left destitute at the end of your bankruptcy. Some examples of exempt property include:
What are non-exempt assets?
Non-exempt assets are more than the minimum amount of assets needed to sustain your life. In a Chapter 7 bankruptcy, these assets are sold and the proceeds are then distributed to the creditors as seen fit by the court to at least partially pay the existing debts. Some examples of non-exempt assets include:
If I file a Chapter 7 bankruptcy, will I be able to keep my house?
Yes. In a Chapter 7 bankruptcy if the equity in your house does not exceed your available exemption and if you have made your house payments on time, if any are due, you can keep your house. You also must continue making your mortgage payments (and secured lines of credit, if any), property tax payments and insurance payments on time and in full.
If I file a Chapter 7 bankruptcy can I keep my car? What about two cars for a married couple filing jointly?
Yes, if the equity in your car(s) does not exceed your available exemption and if you have made your car payments, if you have a car loan, you may keep your car and your spouse's car. Since cars are depreciating assets, most people do not have enough or any equity in their vehicle for the cars to be considered non-exempt. In reality, most people owe more than the car is worth. So, you would not be allowed to keep your car if it is worth more than you owe or if you own it out-right and it is worth more than the allowed exemption.
What if My Car is Leased?
Leased vehicles are more complicated. In some cases, I advise people to use the bankruptcy case as an opportunity to reject any car leases and find a new car that they can purchase (on payments if necessary). If you want to keep your leased vehicle, then, in most cases, you can just continue making the monthly payment.
How does a Chapter 7 bankruptcy end?
For individuals who do not have any non-exempt assets (the majority of cases), the Bankruptcy Court enters an order discharging all the debts approximately 60-days' after the completion of the creditors' meeting. That order means the debts subject to discharge are permanently removed and creditors can no longer come after you for any balances owed. After the Bankruptcy Court enters the discharge order, the case is closed.
For cases involving non-exempt assets, the case closes once all of the non-exempt assets have been sold and the proceeds distributed to general unsecured creditors. However, the Bankruptcy Court will likely enter an order discharging all the debts in approximately the same time frame as above.
Realistically, will I have to sell “everything I own” if I file a Chapter 7 bankruptcy?
Generally, no, that is not the case. Most people do not have any assets above the exempt assets (listed above) that the Chapter 7 Trustee is interested in selling. Therefore, most people get to keep most, if not all, of their “stuff,” including household pets.
So, what steps can I expect in a Chapter 7 bankruptcy?
The following steps are what you should expect in a non-contested Chapter 7 bankruptcy:
What is a 'contested' Chapter 7 bankruptcy?
Most often, this is when the Chapter 7 Trustee or a creditor disputes either an asset you are claiming as exempt or the circumstances surrounding a debt. In most cases, they will either want to sell the asset or try to make the debt non-dischargeable (meaning that it will exist after the bankruptcy case closes). The U.S. Trustee or a creditor may also contest that you should be in a Chapter 13 bankruptcy instead of a Chapter 7 bankruptcy.
What is a Chapter 13 bankruptcy?
Chapter 13 bankruptcies are often referred to as a "Debt Consolidation," or the "Wage Earners Plan." The primary goal of a Chapter 13 bankruptcy is to consolidate your debts and set up a manageable monthly payment. It is designed for individuals who have non-exempt assets that they would like to keep or who make more than the median income. It involves creating a monthly payment plan to pay off creditors over a period of time, and it may not require you to sell assets to pay off your creditors.
What are the requirements for filing a Chapter 13 bankruptcy?
A person filing for Chapter 13 must meet two separate requirements. First, they must possess some form of income in order to fund their monthly payment plan. Second, their debt load must not exceed a certain monetary amount. Chapter 13 was designed as a debt relief method for individuals who do not qualify for Chapter 7 and who have assets they need to protect.
How long does a Chapter 13 bankruptcy last?
Chapter 13 bankruptcies typically take three to five years to complete depending on the household income level.
If I file a Chapter 13 bankruptcy, does the Bankruptcy Court issue the automatic stay like in a Chapter 7 bankruptcy?
YES! Once your Chapter 13 bankruptcy has been filed, the Bankruptcy Court issues the automatic stay, and your creditors are ordered to stop calling you, sending you demand letters, and all state court lawsuits are put on hold, as are any pending foreclosures and repossessions.
How does a Chapter 13 bankruptcy work?
Based on your income and your debts, your attorney calculates a payment schedule that makes monthly payments on your unsecured debts over a 3-5 year period. At the end of the 3-5 years, you will have paid the creditors a reduced amount, and then the debts will be discharged. The proposed Chapter 13 plan must also include payments to secured creditors. Generally, secured creditors must be paid in full under the Plan. You can also make provisions in the plan to catch-up on delinquent payments on secured debts and second mortgages.
So, what steps can I expect in a Chapter 13 bankruptcy?
The following steps are what you should expect in a non-contested Chapter 13 bankruptcy:
How does a Chapter 13 bankruptcy end?
Once you make all of the payments required under your Court-approved plan, the Court will discharge the balance of the debts and close the case.
What are the most common mistakes people make before filing for bankruptcy?
The most common mistakes include the following:
What debts cannot get discharged in bankruptcy?
Certain unsecured debts are not dischargeable in bankruptcy and must continue to be repaid in full. Examples of non-dischargeable debts include certain unpaid taxes, student loans, and unpaid child support.
What do I bring with me to my initial meeting with the attorney?
Please bring these documents with you to our initial meeting:
I filed for bankruptcy years ago and received a discharge. I am over-whelmed with debt again. Can I file again?
Yes, if it has been eight years since you received your Chapter 7 discharge; or two, four or six years under special circumstances. You may file a Chapter 13 four years after filing a Chapter 7, or two years after filing under chapter 13.
How much does it cost to file bankruptcy?
The Federal Bankruptcy Court charges a $306.00 filing fee for Chapter 7 bankruptcy cases and a $274.00 filing fee for Chapter 13 bankruptcy cases. These fees may be paid in installments after filing your bankruptcy petition.
Do I have to do credit counseling?
You must complete a credit counseling class before you can file your bankruptcy case. This class usually costs approximately $35.00 and takes approximately 90 to 120 minutes to complete. This class may be done on-line at your convenience. You will also be required to participate in a financial management seminar after your bankruptcy petition is filed. The post-petition seminar usually costs approximately $15.00 and also takes approximately 90 to 120 minutes to complete. You can also take this seminar on-line at your convenience.
What are unsecured debts?
An unsecured debt is a debt with no collateral attached to it. Credit cards and medical bills are the most common types of unsecured debts. Car repossession deficiencies, personal loans, payday/cash advance loans, most collections and lawsuits are additional examples.
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Kaplan Law PLLC
40 Lake Bellevue Dr., Ste. 100,
Bellevue, WA 98005-2480
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