Bankruptcy comes with a lot of questions. While we can’t answer all of them on a single webpage, this article does address some of the biggest question marks that might be hovering over your own decision about whether to file as an individual (and how to do so).

Remember: every situation is different. Because of the uniqueness of your circumstances there is really no substitute for directly speaking with an experienced lawyer.

What is the difference between the various types of bankruptcy?

Chapter 7 Filing

Chapter 7 is sometimes referred to as a “straight” bankruptcy. In a chapter 7 most debts are “discharged” and the obligation is relieved. A debtor can choose to keep debt if they so desire and it is otherwise in the debtor’s best interest. In a vast majority of chapter 7s, a debtor will keep all assets.

A majority of bankruptcies are the Chapter 7 variety.

Chapter 13 Filing

Chapter 13 is a repayment program that lasts between 36 and 60 months (depending on income). The amount that is repaid depends on the amount of debt that a debtor can afford to repay as well as the type of debt that is required to be repaid. Many factors determine what type of bankruptcy is appropriate. Again, chapter 7 is the most common and efficient type of bankruptcy. If possible, that is the preferred approach.

However, Chapter 13 can resolve debt problems that cannot be resolved in a chapter 7 (ex. Mortgage arrearages and tax debt). Further, debtors with a household income exceeding the state average for their family size are usually required to file a chapter 13.

What Will Filing for Consumer Bankruptcy Accomplish for Me?

While filing for bankruptcy doesn’t make sense in every situation, it may very well be your best path toward future financial freedom. Here are some of the things you might look to accomplish by filing for bankruptcy in Washington:

  • Eliminating your legal obligation to pay most of your debts (i.e., “discharge of debt”)
  • Stop a creditor from repossessing your car or other property
  • Require a creditor to return property it has already repossessed
  • Prevent wage garnishment (or halt ongoing wage garnishments)
  • Stop foreclosure on your home (though the mortgage will not automatically disappear)
  • Prevent your electrical power or other utility services from being disconnected (or require them to be turned back on)
  • Require debt collectors to stop harassing you
  • Get a chance to catch up on missed payments
  • Get a fresh financial start

Bankruptcy is legal protection for people who’ve inadvertently found themselves in over their heads, and who simply want a chance to catch up or start over.

The form of bankruptcy you choose will determine which protections apply to you.

What Can’t Bankruptcy Do for Me?

While filing for consumer bankruptcy can ultimately make a transformative difference in your financial situation, it’s important to realize that bankruptcy is no magic wand. It can’t automatically solve all your problems. Bankruptcy generally will not:

  • …allow you to keep secured property while also eliminating your obligation to make payments on that secured property. (More on secured property below.)
  • …discharge the following types of debt: alimony, child support, court-ordered restitution, criminal fines, and most student loans. (See more on discharging student loan debt below.)
  • …discharge all your tax obligations. (See more on discharging tax debt below...there is more to this question than many people realize.)
  • …get your co-signers off the hook. Successfully filing for individual consumer bankruptcy will protect you, but your co-signers may still be liable for part or all of the loan.
  • …eliminate debts that you incur after filing for bankruptcy.
  • …automatically restore your credit score. (Getting your finances in order through bankruptcy can help you clear up your credit in the long term, but it will not have that effect in the short term.)

What is secured property?

Secured property is property you acquire through financing by putting up collateral to secure the loan. Common examples include home mortgages and car loans. The creditors who issue these loans will typically take a mortgage or lien on your other property to protect themselves in case you default on the loan. These creditors are then referred to as secured creditors.

Bankruptcy may be able to discharge your debt obligations to unsecured creditors (with a few exceptions as mentioned above). But the rules work differently with respect to secured creditors.

Generally speaking, the consumer bankruptcy process will allow you to:

  • Make payments on secured property over time, even if the secured creditors would rather refuse that plan.
  • Stop making future payments on the loan if you give the secured property back.

However, filing for bankruptcy generally will not allow you to completely discharge your debts to secured creditors while also keeping the property. If you are concerned about losing property to secured creditors (either the secured property itself or the collateral), you should discuss your situation with an experienced Tri-Cities bankruptcy attorney as soon as possible. This is one of the most important considerations when choosing between the different forms of bankruptcy.

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What paperwork must I complete in order to file a bankruptcy?

Generally you will have to fill out a form telling your lawyer what assets you have, what debts you have incurred, and some other general information about the nature of your financial affairs. The form is rather lengthy, so we highly recommend getting help from your attorney filling them out with paperwork that is readily available (invoices, statements, memory, etc.).

What is the process?

Prior to filing, you and your attorney will complete necessary paperwork or “schedules.” You will be required to obtain a “pre-bankruptcy counseling certificate.” Your attorney’s staff will assist you. The bankruptcy will then be filed and the automatic stay imposed. You will be required to attend a “meeting of creditors” (see below) several weeks after the initial filing.

In a chapter 7, you will receive a “discharge” letter approximately 60 days after the meeting of creditors. Your bankruptcy is finished at that time.

In a chapter 13, at some point after the meeting of creditors (usually 30–60 days) there is a “confirmation hearing” that your lawyer will attend on your behalf. At that time, the bankruptcy judge will typically approve (“confirm”) the reorganization plan. From that point forward, your obligation is to simply make the required payment and keep your attorney apprised of any significant changes in your financial situation. A chapter 13 debtor will receive a discharge letter when the term of the plan is complete.