Chapter 7 & Chapter 13 Bankruptcy
Feeling overwhelmed by debt? Unable to concentrate on work and your family obligations?
Are you in need of a fresh start in your financial life? Bankruptcy may be an option to help you regain control over your day-to-day finances. If you fee like you are drowning in debt and do not see a light at the end of the tunnel, reach out to us and see if bankruptcy is an option for you. With over 25 years of experience, our attorneys will be able to answer your questions and guide your through the process if you decide that bankruptcy is the best path forward. We offer a no charge initial consultation during which we will take the time to answer your questions and let you know what options are available to you.
What is Consumer Bankruptcy?
Upon the filing of a Chapter 7 or Chapter 13 Bankruptcy, an Automatic Stay is entered which prevents all creditors from attempting any collection of debts outside of the bankruptcy process.
What is Chapter 7 Bankruptcy?
A debtor must pass the “Means Test” to qualify for Chapter 7 Bankruptcy. This means that the debtor’s income must be below the State’s median income for a family of their size.
In a Chapter 7 Bankruptcy, the debtor must disclose what assets they own, how much they are worth and how much equity they have in each asset. The Trustee assigned to the case will review the assets and determine whether there are any assets that cannot be protected by the debtor’s exemptions which would provide the Trustee some money to pay toward the debts. It is rare for a person to lose any assets in a Chapter 7 Bankruptcy as the available exemptions are quite generous. If an asset is at risk of being liquidated in a Chapter 7 Bankruptcy, the filing of a Chapter 13 Bankruptcy may be preferable.
What is Chapter 13 Bankruptcy?
In a Chapter 13 Bankruptcy, an individual prepares plan to repay any debts that must be paid back through bankruptcy, such as mortgage arrears and tax debts, and receive a discharge of the remaining general unsecured debts at the completion of the plan. Typically, a Chapter 13 Bankruptcy repayment period is three to five years. Some debts that are not dischargeable under a Chapter 7 Bankruptcy are dischargeable under a Chapter 13 Bankruptcy.
The Means Test will help determine how much an individual must pay back in a Chapter 13 Bankruptcy.
What are the differences between Chapter 7 Bankruptcy and Chapter 13 Bankruptcy?
Both Chapter 7 and Chapter 13 Bankruptcy cases stop creditors from contacting you immediately, prevent creditors from attempting to collect on debts and ultimately lead to the discharge of many unsecured debts. The information needed from an individual is the same regardless of whether they plan to file Chapter 7 or Chapter 13.
The biggest difference between Chapter 7 and Chapter 13 is that Chapter 7 focuses on discharging (eliminating) unsecured debts such as credit cards, personal loans, and medical bills while Chapter 13 allow a person to catch up on missed payments on secured debts such as a mortgage or vehicle loan while also discharging unsecured debt.
Why would someone consider filing for bankruptcy?
Why should someone work with an attorney to file bankruptcy?
Whether or not to file a bankruptcy, and which bankruptcy to file, are difficult decisions. The guidance of an attorney with years of experience in the Bankruptcy Court will make this seemingly daunting process a manageable one. An attorney will let you know what information and documents you will need to gather and assist you in preparing the formal bankruptcy petition. In addition to answering your questions, the attorney will be able to apply your personal situation to the required Means Test which will determine which bankruptcy you may qualify for. An attorney will act as your guide through the bankruptcy process and make sure that not only is a proper bankruptcy petition filed with the Court to start the process, but also will assist you in preparation for the Trustee Meeting that is required with every bankruptcy filing.
Frequently Asked Questions
How much does bankruptcy typically cost in Washington?
A typical consumer chapter 7 bankruptcy will cost $1,500 – $2,000 plus the court filing fee. Every case is different and that is why we offer a free consultation so that we can learn more about your specific situation. During the consultation, we will discuss what the total fee will be. The fee for a chapter 13 is governed by the bankruptcy court and is currently set at $5,000. The attorney can decide how much of that fee needs to be paid before the case will be filed and how much will be paid out through the chapter 13 plan. This is what the court calls an initial “no look” fee. If an attorney spends more time working on the bankruptcy than typical, and would like to seek additional compensation, they may do so by motion to the court. It has been my experience that many attorneys seek additional fees in nearly every case. In my practice, I rarely seek additional compensation.
What kind of debts can bankruptcy help clear?
A chapter 7 can generally discharge (eliminate) all credit cards, personal loans (not secured) and medical debts. You can discharge a secured debt (vehicle, boat or trailer loan) if you wish to surrender the asset. If you wish to keep the asset, you will need to execute a Reaffirmation Agreement (the attorney will take care of this and explain it to you). You may not discharge a debt incurred “fraudulently” in a chapter 7 but you may in a chapter 13. Some federal tax debts are dischargeable – it depends how old the debt is and when the tax return was filed. Student loans are not automatically dischargeable. A separate action within the bankruptcy called and Adversary Proceeding must be filed and served on the Department of Education and the student loan provider. Alimony and child support may not be discharged.
How do I know if bankruptcy is the correct answer for me as a Washington resident?
There is not a form response to this question as every person and each situation is different. My advice to people considering whether or not to file a bankruptcy is to ask whether they see a realistic light at end of the financial tunnel. Basically, do you have a way to increase income or decrease expenses enough so that you can pay significantly more than the monthly minimum payments on the credit cards/loans to get the balance down to zero in a reasonable amount of time? If you answer yes – make sure that you are being realistic and can commit to the extra payment every month. By the time most clients reach the point of contacting my office, there is no other realistic option. Debt consolidation is generally a bad idea as it will cost much more than a bankruptcy, destroy credit much worse and has a very low chance of success. I have worked with many clients that came to me after signing up with a debt consolidation company and spent thousands of dollars trying to handle their debts outside of bankruptcy.
What are some questions I should ask when looking for a bankruptcy attorney in Vancouver, WA??
I believe that it is important to have a consultation with an attorney (not a paralegal or other person working for the attorney) to see if you are comfortable with that attorney representing you for the process of seeking a discharge of your debts in federal bankruptcy court. I would make sure to ask how long they have practiced bankruptcy and whether they handle only bankruptcy matters or are they a “jack of all trades” and handle several areas of law. It is important to hire an attorney that appears before the bankruptcy trustees and judges on a regular basis. Although the practice of bankruptcy is governed by the federal code – the implementation of the practice can change by how a judge or trustee decides to handle certain situation. A trustee may start asking questions that they had never asked before. If the attorney does not appear at trustee meetings and court hearings on a regular basis, they may not be aware of such changes.
Can bankruptcy help with clearing my student loans?
There have been recent changes at the Department of Justice for how they will review attempts to eliminate or reduce the amount of student debt a debtor in bankruptcy has. Before the change at the Department of Justice, it was nearly impossible to discharge student loans in bankruptcy. Although the bankruptcy code and case law has not changed, this new direction that will be taking place under the current presidency means that the chance to discharge some or all of your federally guaranteed student loans should be much easier now than it has been for several decades. Learn more in my recent blog post on How to Discharge Student Loan Debts Through Bankruptcy Law.
Will I lose my house/car/other asset if I file a bankruptcy?
Generally, no. If a Chapter 7 Bankruptcy is filed, the assigned Trustee will review the value of your assets, the secured liens against those assets and see how much equity you have in each asset. If you have been able to exempt (protect) that equity, the Trustee cannot take your asset. If you do not have enough exemptions available to fully protect the equity, then the Trustee may consider taking the asset and selling it to benefit the creditors of the case. If that appears to be a likely outcome, a person can file a Chapter 13 Bankruptcy and protect their ass
Do I qualify for a Chapter 7 Bankruptcy?
The answer will be determined by the Means Test. This is based on how much total income you have received in the prior six months. If that annualizes out to more than the median income in your state, you will likely need to file Chapter 13. If your income is under the median, the presumption is that you can file Chapter 7. The attorney will gather the information needed to properly prepare the Means Test to review with you and to offer guidance based on the results.
Will I ever be able to obtain credit again if I file bankruptcy?
Yes. Bankruptcy does not prevent a future creditor from offering you credit following the bankruptcy discharge. It is more of a warning to future creditors that you had difficulty with debt in the past. The bankruptcy filing will be on your credit report for 10 years. During that time, potential creditors will look to see how much time has passed since the bankruptcy was filed, what your current income is and whether you are carrying any debts incurred since the bankruptcy completed. Based on this information, the creditor will decide whether to offer you credit and, if so, at what interest rate. Generally, a car dealership will offer a person a loan shortly after a bankruptcy completes, but at a high interest rate. Mortgage lenders will likely consider someone approximately two years after the bankruptcy discharge has been entered.
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