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 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. We will take a closer look at the different types of bankruptcy in the sections that follow.
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.
What is the difference between the various types of bankruptcy?
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 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.
How much does it cost?
Filing fees, attorney fees, and counseling fees are subject to inflation and other changes. Please call our office at 509-586-7797 for the latest.
Will I lose my property and household goods?
In most cases the answer to this question is “No”. The bankruptcy laws allow most debtors to keep all assets via exemptions. There are exemptions for common types of personal property and even real property. It is a rare occurrence that assets are sold to satisfy debt. If assets will be sold, your attorney will advise you of that possibility well in advance.
What is the automatic stay?
When a debtor files a bankruptcy, creditors are prevented from collecting any debt owed at the time the bankruptcy is filed. Thus, debt collection efforts (including garnishments, lawsuits and harassing phone calls) are “stayed” pending the conclusion of the bankruptcy or some other time as indicated by the court. Most debtors see a significant reduction in creditor collection efforts immediately following the filing of the bankruptcy, which is a result of the automatic stay.
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. Although the form is rather lengthy, most people are able to complete it with paperwork that is readily available (invoices, statements, memory, etc.). In the event you need assistance, the trained staff at Hames, Anderson, Whitlow & O’Leary, P.S. can help.
What documents do I need in order to file a bankruptcy?
Situations vary, but in most cases the following documents will provide your attorney with the necessary information:
- Wage stubs
- Last two years tax returns
- Recent account statements
- Copies of relevant legal documents including divorce paperwork.
Can I discharge student loan debt?
Generally, no. There are however, exceptions that could apply. Furthermore, solving other debt problems could allow you to make the monthly payments on the student loan debt.
Can I discharge tax debt?
It is a common misconception that tax debt is non-dischargeable. Depending on the particulars of the tax debt, bankruptcy may help resolve debts to the IRS and other governmental entities. Ask your attorney for more detailed information.
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. You’re 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.
What happens at the meeting of creditors?
The meeting of creditors is an opportunity for the bankruptcy trustee and creditors to ask you questions about your financial situation. Typically, only the trustee and your attorney are at that meeting – it is relatively rare that creditors appear. Although the meeting is not a “court appearance” it is nonetheless somewhat formal. You will be sworn under oath and the trustee will ask you several questions. The meeting typically takes several minutes.
The trustee’s role is to inquire about your financial situation. All trustees are respectful and cognizant of the realities that require people to file for bankruptcy protection. They are more concerned about the accuracy of the information you provided to the court than they are with the reasons for your filing.
Many debtors are needlessly anxious and nervous about the meeting of creditors. After the meeting they realize their anxiety was unnecessary.
Can I keep my home and car?
In most cases, the debtor has the option to keep secured debt such as houses or cars. If there is a loan associated with the property, your attorney will make arrangements with the creditor (reaffirmation agreements) to continue to make payments on the loan. If you prefer to “surrender” (give back) the property, you can. Exceptions to this rule exist if there is some significant amount of equity in the property or if the payments on debt associated with the property exceed a reasonable amount (in relation to your household income).
How will a bankruptcy affect my credit?
Obviously, filing for bankruptcy will have a negative impact on credit rating. However, in many cases, a person who files for bankruptcy protection already has a less than perfect rating, so the impact is negligible. Bankruptcy allows you to essentially “start fresh” with your credit and rebuild it over time.
If I file for bankruptcy, when will I be able to finance a house or car?
The answer to this depends on your financial situation at the time you try to buy the house or car. If there is a record (after the bankruptcy) of maintaining monthly payments, you have sufficient income, and are attempting to buy an item within your means, you will likely find lenders willing to loan money. Oftentimes, this question relates more to how much interest you pay on the loan rather than whether or not you would “qualify.” A lender may also require a larger down payment from you.
How do I handle creditors that won’t stop calling, are harassing me, etc.?
Creditors are given a lot of discretion in the manner in which they can attempt to collect a debt. Filing the bankruptcy petition is the only way to “force” creditors to stop harassing a debtor.
What if my creditors are trying to claim more than I really owe?
Sadly, creditors aren’t always honest when trying to collect on a debt. Some are predatory or fraudulent. In other cases, the creditor might try to claim more than is truly owed because of a misunderstanding, an accounting error, or a mistake with insurance claims, etc.
Challenging errant or fraudulent creditor claims is part of the bankruptcy process. An experienced Tri-Cities bankruptcy lawyer can help you identify potentially erroneous claims from creditors and challenge them in the most effective way possible.
What is the difference between debt reduction plans and a chapter 13 bankruptcy?
A chapter 13 plan is a formal repayment plan that has the force of law. Creditors generally must get permission from the bankruptcy court before suing, garnishing wages, garnishing checking accounts or taking other steps to collect a debt. That permission is not granted very often. With debt reduction plans, the creditor can take any action they deem appropriate – regardless of the agreement that you’ve arranged. Further, the payment made in a chapter 13 is based on what the debtor can afford. In a debt reduction plan, the payment is based on the amount the creditor demands of the debtor.
What are common reasons for filing a bankruptcy?
Common reasons include: medical bills, divorce, employment termination or decrease in employment, family tragedy, accidents, or a combination of these events. In most cases, all bankruptcies can be “traced” to some significant event.
How long will a bankruptcy appear on my credit report?
Typically a notation of a bankruptcy will stay on your credit report for 7 years, although federal laws allow for the notation to remain for up to 10 years.
If I’m married, am I obligated to file with my spouse?
No. However, in most cases, it is in everyone’s best interest to file “jointly.” The cost is the same regardless of whether the petition is joint or separate.
Do I have to have an attorney to file a bankruptcy?
No. However, an attorney who is familiar with the law and procedures will make the process more efficient. More importantly, a debtor who represents himself runs the risk of having the bankruptcy “dismissed.” Depending on the circumstance, a dismissal could prohibit someone from refiling another petition at a later date.
Must I be a citizen in order to file for bankruptcy?
If you are considering bankruptcy, have questions about the process, or simply want to figure out whether it’s a good idea for you, give us a call. We’re here to help.
Simply dial 509-586-7797, or contact us online to schedule a consultation with the Tri-Cities bankruptcy lawyers at Hames, Anderson, Whitlow & O’Leary, P.S. today.