DISCLAIMER: The law often changes. Each case is different. This FAQ page is meant to give you general information and not to give you specific legal advice. A decision to file for bankruptcy should be made only after determining that bankruptcy is the best way to deal with your financial problems. The answers below cannot explain every aspect of the bankruptcy process. If you still have questions after reading it, you should speak with bankruptcy attorney, Jason B. Couey. Click HERE if you would like to set up a free consultation.
What Is Bankruptcy?
Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law.
What Does It Cost to File for Bankruptcy?
The court filing fee for a Chapter 7 Bankruptcy is $335.00. The Court filing fee for a Chapter 13 Bankruptcy is $310.00. For more information about Attorney Fees and Costs, please CLICK HERE FOR THE ATTORNEY FEES & COSTS PAGE.
What Can Bankruptcy Do for Me?
Bankruptcy may make it possible for you to:
* Eliminate the legal obligation to pay most or all of your debts. This is called a “discharge” of debts. It is designed to give you a fresh financial start.
* Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)
* Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
* Stop wage garnishment, stop debt collection harassment, and similar creditor actions to collect a debt.
* Restore or prevent termination of utility service.
* Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.
What Can Bankruptcy Not Do?
Bankruptcy cannot cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:
* Eliminate certain rights of “secured” creditors. A creditor is “secured” if it has taken a mortgage or other lien on property as collateral for a loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money on the debt if you decide to give back the property. But you generally cannot keep secured property unless you continue to pay the debt.
* Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, most student loans, court restitution orders, criminal fines, and most taxes.
* Protect cosigners on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.
* Discharge debts that arise after bankruptcy has been filed.
What Must I Do Before Filing Bankruptcy?
You must receive budget and credit counseling from an approved credit counseling agency within before your bankruptcy case is filed. The agency will review possible options available to you in credit counseling and assist you in reviewing your budget. Different agencies provide the counseling in-person, by telephone, or over the Internet. If you decide to file bankruptcy, you must have a certificate of completion from the agency showing that you received the counseling before your bankruptcy case was filed. I can provide you with a few providers to complete the credit counseling requirement.
Most approved agencies charge anywhere from $10 to $50 for the pre-filing counseling. However, the law requires approved agencies to provide bankruptcy counseling and the necessary certificates without considering an individual’s ability to pay. If you cannot afford the fee, you should ask the agency to provide the counseling free of charge or at a reduced fee.
Some of the approved agencies offer debt management plans (also called DMPs). A DMP is a plan to repay some or all of your debts in which you send the counseling agency a monthly payment that it then distributes to your creditors. Debt management plans can be helpful for some consumers. For others, they are a terrible idea. The problem is that many counseling agencies will pressure you into a debt management plan as a way of avoiding bankruptcy whether it makes sense for you or not. You should not consider a debt management plan if making the monthly plan payment will mean you will not have money to pay your rent, mortgage, utilities, food, prescriptions, and other necessities. It is important to keep in mind these important points:
* Bankruptcy is not necessarily to be avoided at all costs. In many cases, bankruptcy may actually be the best choice for you.
* If you sign up for a debt management plan that you can’t afford, you may end up in bankruptcy anyway (and a copy of the plan must also be filed in your bankruptcy case).
* There are approved agencies for bankruptcy counseling that do not offer debt management plans.
It is usually a good idea for you to meet with an attorney before you receive the required credit counseling. Unlike a credit counselor, who can not give legal advice, an attorney can provide counseling on whether bankruptcy is the best option. If bankruptcy is not the right answer for you, a good attorney will offer a range of other suggestions. The attorney can also provide you with a list of approved credit counseling agencies, or you can check the website for the United States Trustee Program office at www.usdoj.gov/ust.
What Property Can I Keep?
In a chapter 7 case, you can keep all property that is considered “exempt” from the claims of creditors. In Washington state, you can choose between using either the Washington state exemptions or using the federal bankruptcy exemptions. Our office prefers to use the federal exemptions rather than the Washington state exemptions. There are numerous reasons why our office chooses to use the federal exemptions rather than the Washington state exemptions. The majority of cases we file at our office are cases in which it is not necessary to use Washington state exemptions. However, one main reason our office would choose to use Washington state exemptions, is if you have a lot of equity in your home. For example, if you are a single filer, and you have $40,000 in equity in your home, you would want to use Washington state exemptions because the federal laws only allow you to have up to $25,150 in equity, whereas the Washington state laws allow you to have up to $125,000 in equity. However, if you are a married couple filing for bankruptcy, and you have $40,000 in equity in your home, you can use either Washington state exemptions or the federal exemptions because you are allowed up to $50,300 in equity if you are filing as a couple.
In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth when your bankruptcy case is filed. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement.
You also only need to look at your equity in real property (your residence). That means you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $150,000 house with a $140,000 mortgage, you have $10,000 in equity. You can fully protect the $150,000 home with a $10,000 exemption.
While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didn’t file bankruptcy.
What Will Happen to My Home and Car If I File Bankruptcy?
In most cases you will NOT lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in a chapter 13 bankruptcy.
However, some of your creditors may have a “security interest” in your home, automobile, or other personal property. This means that you gave that creditor a mortgage on the home or put your other property up as collateral "security" for the debt owed. Bankruptcy does not make these security interests go away. If you don’t make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.
In a chapter 13 case, you may be able to keep certain secured property by paying the creditor the value of the property rather than the full amount owed on the debt. Or you can use chapter 13 to catch up on back payments and get current on the loan.
There are also several ways that you can keep collateral or mortgaged property after you file a chapter 7 bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth. In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt. If you put up your household goods as collateral for a loan (other than a loan to purchase the goods), you can usually keep your property without making any more payments on that debt.
Will Bankruptcy Wipe Out/"Discharge" All Of My Debts?
Yes, with some exceptions. Bankruptcy will not normally wipe out:
* Money owed for child support or alimony;
* Most fines and penalties owed to government agencies;
* Most taxes and debts incurred to pay taxes which can not be discharged;
* Student loans, unless you can prove to the court that repaying them will be an “undue hardship”;
* Debts not listed on your bankruptcy petition;
* Loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
* Debts resulting from “willful and malicious” harm;
* Debts incurred by driving while intoxicated;
* Mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).
Will I Have to Go to Court?
In most bankruptcy cases, you only have to go to a proceeding called the “Meeting of Creditors” to meet with the bankruptcy trustee and any creditor who chooses to come. Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation. More often than not, your creditors will not show up.
What Else Must I Do to Complete My Case?
After your case is filed, you must complete a personal financial management course, also known as a debtor education course. This course will take approximately two hours to complete. Many of the course providers give you a choice to take the course in-person at a designated location, over the Internet, or over the telephone. The Law Office of Jason B. Couey will provide you with a small list of providers that we approve and which are inexpensive. Currently, the providers we suggest charge approximately $10 to $20 for the course.
Will Bankruptcy Affect My Credit?
There is no clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be bad. Bankruptcy will probably not make things any worse. In fact, I have noticed that my client's credit scores go up if there credit score was low at the time of filing. The fact that you filed bankruptcy can lower your credit score, however, the fact that you are discharging debt will actually increase your score.
The fact that you’ve filed a bankruptcy can appear on your credit record for ten years from the date your case was filed. But because bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to get new credit. After filing your case you can expect solicitations to buy a car from local dealers in the Spokane are who will even sell you a care during your chapter 7 bankruptcy.
If you decide to file bankruptcy, remember that debts discharged in your bankruptcy should be listed on your credit report as having a zero balance, meaning you do not own anything on the debt. Debts incorrectly reported as having a balance owed will negatively affect your credit score and make it more difficult or costly to get credit. You should check your credit report after your bankruptcy discharge and file a dispute with credit reporting agencies if this information is not correct.
What Else Should I Know?
Utility services: Public utilities, such as the electric company, can not refuse or cut off service because you have filed for bankruptcy. However, the utility can require a deposit for future service and you do have to pay bills which arise after bankruptcy is filed.
Discrimination: An employer or government agency can not discriminate against you because you have filed for bankruptcy. Government agencies and private entities involved in student loan programs also can not discriminate against you based on a bankruptcy filing.
Driver’s license: If you lost your license solely because you couldn’t pay court-ordered damages caused in an accident, bankruptcy will allow you to get your license back.
Co-signers: If someone has co-signed a loan with you and you file for bankruptcy, the co-signer may have to pay your debt. If you file under chapter 13, you may be able to protect co-signers, depending upon the terms of your chapter 13 plan.
Which Debts Do I Still Owe After Bankruptcy?
When your bankruptcy is completed, many of your debts are “discharged.” This means they are canceled and you are no longer legally obligated to pay them.
However, certain types of debts are NOT discharged in bankruptcy. The following debts are among the debts that generally may not be canceled by bankruptcy:
* Alimony, maintenance, or support for a spouse or children.
* Student loans. Almost no student loans are canceled by bankruptcy. But you can ask the court to discharge the loans if you can prove that paying them is an “undue hardship.” Occasionally, student loans can be canceled for reasons not related to your bankruptcy when, for example, the school closed before you completed the program or if you have become disabled. There are also many options for reducing your monthly payments on student loans, even if you can’t discharge them. For more information, look at the NCLC Guide to Surviving Debt.
* Money borrowed by fraud or false pretenses. A creditor may try to prove in court during your bankruptcy case that you lied or defrauded them, so that your debt cannot be discharged. A few creditors (mainly credit card companies) accuse debtors of fraud even when they have done nothing wrong. Their goal is to scare honest families so that they agree to reaffirm the debt. You should never agree to reaffirm a debt if you have done nothing wrong. If the company files a fraud case and you win, the court may order the company to pay your lawyer’s fees.
* Most taxes. The vast majority of tax debts can not be discharged. However, this can be a complicated issue. If you have tax debts you will need to discuss them with your lawyer.
* Most criminal fines, penalties and restitution orders. This exception includes even minor fines, including traffic tickets.
* Drunk driving injury claims.
Do I Still Owe Secured Debts (Mortgages, Car Loans) After Bankruptcy?
Yes and No. The term “secured debt” applies when you give the lender a mortgage, deed of trust, or lien on property as collateral for a loan. The most common types of secured debts are home mortgages and car loans. The treatment of secured debts after bankruptcy can be confusing.
Bankruptcy cancels your personal legal obligation to pay a debt, even a secured debt. This means the secured creditor can’t sue you after a bankruptcy to collect the money you owe.
However, the creditor can still take back their collateral if you don’t pay the debt. For example, if you are behind on a car loan or home mortgage, the creditor can ask the bankruptcy court for permission to repossess your car or foreclose on your home. Or the creditor can just wait until your bankruptcy is over and then do so. Although a secured creditor can’t sue you if you don’t pay, that creditor can usually take back the collateral.
For this reason, if you want to keep property that is collateral for a secured debt, you will need to catch up on the payments and continue to make them during and after bankruptcy, keep any required insurance, and you may have to reaffirm the loan.
What Is a Reaffirmation Agreement?
Although you filed bankruptcy to cancel your debts, you have the option to sign a written agreement to “reaffirm” a debt. If you choose to reaffirm, you agree to be legally obligated to pay the debt despite bankruptcy. If you reaffirm, the debt is not canceled by bankruptcy. If you fall behind on a reaffirmed debt, you can get collection calls, be sued, and possibly have your wages garnished or other property taken.
Reaffirming a debt is a serious matter. You should never agree to a reaffirmation without a very good reason.
Do I Have to Reaffirm Any Debts?
No. Reaffirmation is always optional. It is not required by bankruptcy law or any other law. If a creditor tries to pressure you to reaffirm, you can always say no.
Can I Change My Mind After I Reaffirm a Debt?
Yes. You can cancel any reaffirmation agreement within sixty days after it is filed with the court. You can also cancel at any time before your discharge order. To cancel a reaffirmation agreement, you must notify the creditor in writing. You do not have to give a reason. Once you have canceled, the creditor must return any payments you made on the agreement.
Also, remember that a reaffirmation agreement has to be in writing, has to be signed by your lawyer or approved by the judge, and has to be made before your bankruptcy is over. Any other reaffirmation agreement is not valid.
Do I Have to Reaffirm on the Same Terms?
No. A reaffirmation is a new contract between you and the lender. You should try to get the creditor to agree to better terms such as a lower monthly payment or interest rate. You can also try to negotiate a reduction in the amount you owe. The lender may refuse but it is always worth a try. The lender must give you disclosures on the reaffirmation agreement about the original credit terms, and any new terms you and the lender agree on must also be listed.