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Frequently Asked Questions About Bankruptcy -
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**The following is general information about bankruptcy, and is not intended to be a substitute for consulting with an attorney or qualified financial advisors.**
What is bankruptcy?
Bankruptcy is a legal procedure for dealing with debt problems of individuals and businesses; specifically, a case filed under one of the chapters of Title 11 of the United States Bankruptcy Code (11 U.S.C. §§ 101-1330), which is federal bankruptcy law.
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Do I need an attorney to file bankruptcy?
While it is possible to file a bankruptcy case without an attorney, a “pro se” filing, it may be a difficult process, one that requires careful attention to detail. The laws governing the process are complex and subject to change. Each situation is different and it is recommended that anyone considering filing a bankruptcy consult with an attorney familiar with the bankruptcy laws prior to filing a case.
Our law office provides a consultation, with an attorney, for matters pertaining to bankruptcy or debt advice. You can schedule an appointment to come in to either our Everett or Bellevue office, talk to an attorney, and ask all the questions you’d like. Call us at (425) 783-0797, (425) 745-9866, (206) 624-8330 or (425) 454-4122 to schedule your consultation.
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How long does a bankruptcy remain on my credit report?
Under provisions of the Fair Credit Reporting Act [15 U.S.C. §1692], the filing of a bankruptcy can be listed on an individual’s credit report for no longer than 10 years.
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What types of bankruptcy are there?
Chapter 7 - sometimes referred to as a “liquidation bankruptcy,” is the type of proceeding that is commonly associated with the term bankruptcy. Most debts, depending upon the type of debt, included in a Chapter 7 bankruptcy are discharged by the Court; however, not all debts can be discharged. The Chapter 7 trustee has access to all of the debtor’s nonexempt property for possible sale and distribution of proceeds to creditors according to priorities established by law. The Chapter 7 trustee may also bring actions against creditors of the debtor to recover property of the bankruptcy estate.
Chapter 11 - sometimes referred to as a “reorganization bankruptcy,” is the type of proceeding which usually involves a corporation, business partnership, or individuals with large asset bases. A Chapter 11 debtor usually proposes a Plan of Reorganization to keep its business alive and to pay creditors over time.
Chapter 12 - provides for adjustment of debts of a “family farmer” as defined in the Code.
Chapter 13 - sometimes referred to as a “consumer reorganization” or “wage-earner” bankruptcy, is for individuals or small-business proprietors who find themselves in financial difficulty and are unable to pay their debts. A Chapter 13 bankruptcy allows a debtor to keep property and to repay debts over time, usually 3 to 5 years. Payments are made by the debtor (sometimes through wage deduction) to the Court-appointed Chapter 13 Trustee, who handles payments to creditors according to the approved Plan. Because a bankruptcy liquidation is avoided, creditors are paid without need for constant contact and without collection expense. Court supervision ensures fair treatment of all creditors.
Under certain circumstances, mortgage delinquencies or certain delinquencies on secured loans can be brought current. Once a Plan has been filed, interest usually stops accruing on unsecured debts. Although its scope is broader than a Chapter 7, a Chapter 13 Plan may be used only by individuals with regular income from employment or their business and with limited debts (certain unsecured debts of less than $360,000 and certain secured debts of less than $1,081,000.00).
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What are the advantages of filing bankruptcy?
- Creditors may not commence most legal proceedings against a debtor who has filed for relief under bankruptcy, nor may they continue most legal proceedings already in process without first obtaining court approval.
- An individual who finds their job threatened by garnishment and creditor contact may find this relief desirable to prevent discharge from employment.
- An orderly, systematic set of rules determines any property distribution or the amount one must pay to creditors.
- Most pre-bankruptcy debts, depending upon the type of debt, will be discharged by the Court, giving an overextended individual a “fresh start.” Keep in mind, however, that not all debts may be discharged.
- With few exceptions (possibly provided in a Chapter 13 Plan), creditors have no claim on a debtor’s future income or assets. In general, wages, earnings and most property acquired after bankruptcy are not subject to claims of pre-bankruptcy creditors.
- Federal and state laws permit a debtor to exempt some, or all, property from the claims of creditors. Usually, the debtor is permitted to retain all of their property.
- Certain liens and involuntary transfers, such as garnishments, may be avoided if timely action is taken.
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What are the disadvantages of filing bankruptcy?
- Bankruptcy filings are a matter of public record. Filing a Petition may be reported on your credit report, and may remain on an individual’s credit history records for up to 10 years. This may make it difficult to obtain loans or some types of credit.
- Individuals who co-signed or guaranteed debts may ultimately be required to pay those debts (except in certain limited situations in a Chapter 13).
- Those filing a Chapter 7 lose the right to file another Chapter 7 for eight years.
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If I file bankruptcy, how can I re-establish credit?
Re-establishing credit after having filed a bankruptcy can be a slow and careful process, usually done one loan at a time. Making prompt payments on any remaining debts, rent, utility bills, car loans or house payments can help you to build up a history of payment.
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What are my next steps?
- Put together a list of your creditors, complete with addresses and account numbers, and an approximate amount owed.
- Put together a rough monthly budget, jotting down income for the month and normal monthly expenses (i.e., rent/mortgage, utilities, groceries, day care, etc.). Find your most recent Tax Return!
- Contact Snodgrass & Warren, Inc., P.S., to schedule a consultation with an attorney. You will be able to talk to the attorney, ask as many questions as you’d like. The attorney will answer your questions, assess your financial situation, and let you know if bankruptcy is something for you to consider or not. If it is not, the attorney will make some recommendations of things you can do. If bankruptcy is an option, they’ll let you know the best type of bankruptcy for you, whether it is something you will be able to handle on your own, and what our fee would be if we were to represent you.
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Contact one of the credit counseling services approved pursuant to 11 U.S.C. §111. To see a list of these agencies for residents of Western Washington, click on the following link then scroll down to ‘Western Washington’:
http://www.usdoj.gov/ust/eo/bapcpa/ccde/CC_Files/CC_Approved_Agencies_HTML/cc_washington/cc_washington.htm
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What is a “fresh start”?
This is the characterization of a debtor’s status after bankruptcy, i.e., free of most debts. One of the purposes of the Bankruptcy Code is to allow a debtor a fresh start.
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Is bankruptcy the only alternative available to me?
- You might consider doing nothing. If you are not working or do not have substantial property, it may not be necessary to file bankruptcy. Considerations to protect property from creditors should be discussed with an attorney.
- You might negotiate an out-of-court arrangement with creditors to reschedule and/or refinance debts.
- You might contact a non-profit credit counseling agency such as Consumer Credit Counseling [1-800-355-2227] or Clearpoint Financial [1-877-422-9044]. STAY AWAY FROM ANY ORGANIZATION THAT YOU SEE ADVERTISED ON TV. ALMOST ALL OF THOSE ON TV ARE SCAMS.
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What is the “automatic stay”?
Upon the filing of a bankruptcy, a “stay” goes into effect which prohibits creditors from taking or continuing most actions to collect money or property from a debtor. This includes telephone contact, letters, lawsuits, etc. A creditor wanting to proceed with actions against the debtor or their property must obtain permission from the U.S. Bankruptcy Court, or face a potential claim for damages, and other remedies. Creditors should seek legal advice when notified of a bankruptcy proceeding.
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What property can I protect in a bankruptcy?
A debtor may be allowed to retain, free from the claims of creditors who do not have liens, property or value in property. State law allows a debtor to exempt property from the claims of unsecured creditors and creditors with judgment liens. The Federal Bankruptcy Code also lists broad exemptions, which may be selected in lieu of State exemptions. The exemption statutes are very complicated, and a debtor should consult with an attorney to ensure that appropriate exemptions are claimed.
Within certain dollar amounts, a debtor is allowed generally to keep equity in personal effects, household goods, a car, a house, and similar necessities. Decisions may need to be made as to whether to give back or to keep and pay for property secured by a lien, such as a car loan, and the appropriate documents concerning those intentions must be filed with the Court.
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What debts may not be discharged in bankruptcy?
Some debts are not affected by an Order of Discharge, and are non-dischargeable. For example: certain taxes, claims of creditors who are not notified, spousal maintenance, child support, fines, most student loans, damages caused by drunken driving, abuses of cash advances, and credit card usage just prior to a bankruptcy filing. Creditors of debts created by fraud or misrepresentation, theft, and intentional and malicious injuries must obtain a court judgment declaring such debts non-dischargeable before the debts will survive bankruptcy. Consult with an attorney prior to filing a bankruptcy to determine how you will be affected by entry of an Order of Discharge.
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