Personal Debt Relief

Chapter 7 bankruptcy is sometimes called liquidation bankruptcy—it cancels your debts, but you might have to let the bankruptcy trustee sell some of your property to repay your creditors. You will get to keep any exempt property, which usually includes household goods and clothing, and similar items.

By filing for bankruptcy, you are technically placing the property you own and the debts you owe in the hands of the bankruptcy court. You can’t sell or give away any of the property you own when you file, or pay off your pre-filing debts, without the court’s consent. However, with a few exceptions, you can do what you wish with property you acquire and income you earn after you file for bankruptcy.

In every Chapter 7, the court appoints a bankruptcy trustee. The trustee’s primary duty is to see that your creditors are paid as much as possible on what you owe them. And the more assets the trustee recovers for creditors, the more the trustee is paid.

At the end of the bankruptcy process, most of your debts are discharged by the court. That means that you no longer owe your creditors, except for:

– debts that automatically survive bankruptcy, unless the court rules otherwise (for example, child and spousal support, most tax debts, and student loans), and

– debts that the court has declared nondischargeable because the creditor objected (for example, debts incurred by fraud or malicious acts).

Chapter 7 FAQs

What is Chapter 7?
Chapter 7 is what most people think of when they think of bankruptcy. When you file a Chapter 7 bankruptcy petition, a trustee is appointed to liquidate any of your assets beyond those that are exempt. Once any excess assets are sold, the money is used to pay creditors. Most debts are discharged, and you can usually keep any income you earn after the petition was filed.

Who can file Chapter 7 Bankruptcy?
Individuals and businesses can both file for Chapter 7, but only individuals can receive a discharge. Since BAPCPA passed in 2005, debtors must pass a “means test” to be in Chapter 7. In essence, if you make too much money, you will not qualify for Chapter 7, and you will have to be in a Chapter 13.

What is Credit Counseling?
Before an individual can file bankruptcy, they must obtain credit counseling from an accredited agency. A list of accredited agencies can be found at the United States Trustee’s website, here.

Will I lose all of my belongings?
You are entitled to protect your possessions using exemptions under either federal or state law. You can protect some equity in your residence ($125,000 under Washington law), vehicles, household goods, life insurance, retirement plans (including IRA’s and your 401(k)), clothing, and some items related to your job. If you don’t own a residence, you might be able to use the federal exemption “Wild Card” to exempt any other property.

Can I stop bill collectors from contacting me?
One of the major benefits of filing for protection under Chapter 7 is that most creditor actions are stayed, or stopped. This means that debt collection efforts, garnishments and foreclosure are stopped. As soon as a creditor becomes aware that you have filed for bankruptcy, the creditor must stop all efforts to collect the debt. If there is an ongoing garnishment or foreclosure, you should tell us so that we can contact the creditor immediately. A creditor wishing to proceed with action against the debtor or its property must obtain permission from the Court. If the creditor continues to try and collect once they become aware of the bankruptcy, they may be liable for court sanctions, damages and attorneys fees.

I am married; does my spouse have to file bankruptcy too?
No. In some cases where only one of you has debts, or under other conditions, it might be advisable to only have one spouse file. Since Washington is a community property state, even if only one spouse files, all of the couple’s community property may be subject to your bankruptcy.

Do I have to fill out forms?
Yes, unfortunately, and lots of them! You will receive a lengthy and very detailed questionnaire from our office. You will need to complete all of the questions, even if they do not necessarily apply to you or your situation. You must list all of your property and all of your debts. This includes debts owed to family members or friends or your mother’s antique wedding ring. When you sign your bankruptcy petition and schedules, you do so under penalty of perjury. At your initial court appearance, you will have to testify, under oath, that the list of assets and property are complete. The consequences of failing to list assets or debts can be very serious. Download worksheets here

What if I forget to list a creditor?
You can file an amendment to your schedules up to a certain point in time before your discharge is entered. If the amendment is filed in time, then the creditor is added to the bankruptcy.

Do I have to go to Court?
Yes. About 30 to 40 days after your bankruptcy case is filed, you will have to attend a hearing with your bankruptcy trustee. Notice of this meeting is mailed to all of your creditors who are invited to attend the meeting. This hearing is called the First Meeting of Creditors, or the Section 341 Meeting. At this hearing, the trustee will swear you in and ask you questions about your bankruptcy petition, assets, debts and other matters. After the trustee is finished asking questions, creditors will have the opportunity to ask you questions. Most of the time, creditors do not attend. An attorney from The Tracy Law Group will attend the hearing with you. After this hearing, you will, most likely, not have to attend any other Court hearings.

What happens after I file my case?
Normally, the bankruptcy court will grant your discharge about 60 to 65 days after the First Meeting of Creditors.

What debts are discharged?
The purpose of bankruptcy law is that the honest debtor should be given a “fresh start” through the discharge of debts. Not all debts, however, are dischargeable. The following types of debts are generally non-dischargeable:

– Debts that the Bankruptcy Court determines are non-dischargeable because of fraud, false pretense, misrepresentations or willful and malicious injury to property

– Most taxes

– Debts that you did not schedule

– Debts owed to a spouse, former spouse or child for alimony, maintenance and support, or property settlement agreements

– Debts for fines, penalties or restitution for criminal activity

– Debts for damages for driving while intoxicated

– Student Loans

What happens if my creditor has collateral securing the payment of debt?
A secured debt is simply a debt in which the creditor has a lien on some item of property to “secure” your payment of the debt. The most common types of secured debts are a mortgage on a home and a lien on a car. In Chapter 7 cases, you generally have the following four choices to deal with your secured debt:

– If your payments are current on the date that you file the chapter 7, and your equity in the collateral is covered under the exemptions, you may keep the property so long as you continue to make the monthly payments and comply with the terms of your contract. The advantage is that you cannot be held responsible for the debt if you can’t make the payments current sometime in the future.

– If your payments are not current, you can try to negotiate a “reaffirmation agreement” with the creditor that allows you to catch up your payments.

– Redeem the property by paying the creditor the value of the collateral.

– Give the property back to the creditor (“surrender” the property) and have the debt discharged.

Chapter 13 is often called the wage earner bankruptcy. Chapter 13 is designed for people with regular income who desire to pay their debts, but are currently unable to do so. Any person, even those who are self-employed or who own an unincorporated business, are eligible to file for Chapter 13 bankruptcy, so long as you come within the debt limits imposed by Chapter 13.

The concept behind a Chapter 13 bankruptcy is that you (and your spouse, if any) make sufficient income to pay all of your current living expenses (e.g., rent, food, utilities, transportation, clothes, etc.) and have some money left over to apply to your debts.  You will submit a Chapter 13 plan in which you set out a budget detailing your take-home pay and monthly living expenses. You pay the excess income to the bankruptcy trustee who then pays the money to your creditors.  The plan lasts for at least 36 months unless your debts are paid in full in a shorter time.  The payment period may be extended beyond 36 months (but not over 60 months), if you need the extra months to pay enough on your debts to have the plan approved by the Court.  At the end of the Chapter 13 plan, any amounts still owing on your unsecured debts are forgiven.  In certain cases, Chapter 13 allows us to lower the amount of your loans or give you a lower interest rate on certain loans.  If you have a secured loan like a mortgage, deed of trust, or car loan that you are behind on, Chapter 13 allows you to catch up the amount you are behind over time.

Chapter 13 is usually preferable for a person who:

– wishes to save an asset, typically a house or car, from foreclosure, by curing the defaults over time,

– wishes to repay all or most of his or her unsecured debts and has the income with which to do so within a reasonable time,

– has valuable nonexempt property or has valuable exempt property securing debts, either of which would be lost in a chapter 7 case,

– is not eligible for a discharge under chapter 7,

– has one or more substantial debts that are dischargeable under chapter 13 but not under chapter 7, or

– has sufficient assets with which to repay most debts, but needs temporary relief from creditors in order to do so.

Chapter 13 FAQs

Who can file Chapter 13 Bankruptcy?
To be eligible to file for Chapter 13, you must be an individual (not a business), you must have regular income, and you must have secured debt under $922,975 and unsecured debt under $307,675.

If you do not have regular income, you might qualify for a Chapter 7 bankruptcy.

If your debt is too high, you might qualify for an individual Chapter 11 bankruptcy case.

What is a Chapter 13 and how is it different from a Chapter 7? 
The basic difference between Chapter 7 and Chapter 13 is that under Chapter 7 a trustee sells any propery of the debtor that is not exempt to pay creditors.  In a Chapter 13, the debtor makes payments to a Chapter 13 trustee over time, and those payments go to pay the creditors.

As a practical matter, under Chapter 7 the debtor may not lose much, if any, property, since most household goods and a reasonable amount of assets are considered exempt.  But if there are assets that are not exempt or have too much value, the trustee will sell them and pay the creditors.  In a Chapter 13, the debtor usually keeps all their property and pays off all or a percentage of their debts.

Will I lose my house?
Many times, a Chapter 13 can stop a foreclosure and allow you to keep your house.  You will have to be able to make the mortgage payments.  Any past due payments can be “cured” over the life of a plan.

Will I lose all of my belongings?
You are entitled to protect your possessions using exemptions under either federal or state law. You can protect your equity in your residence up to $125,000 in Washington, vehicles, household goods, life insurance, retirement plans (including IRA’s and your 401(k)), clothing. If you don’t own a residence, you might be able to use the federal exemption “Wild Card” to exempt any other property.  Your exemptions will be determined based on where you lived two years prior to filing bankruptcy.

Can I stop bill collectors from contacting me?
One of the major benefits of filing for bankruptcy is that most creditor actions are stayed, or stopped. This means that debt collection efforts, garnishments and foreclosure are stopped.

As soon as a creditor becomes aware that you have filed for bankruptcy, the creditor must stop all efforts to collect the debt. If there is an ongoing garnishment or foreclosure, you should tell us so that we can contact the creditor immediately. A creditor wishing to proceed with action against the debtor or its property must obtain permission from the Court. If the creditor continues to try and collect once they become aware of the bankruptcy, they may be liable for court sanctions, damages and attorneys fees.  Find out more here.

I am married; does my spouse have to file bankruptcy too?
No. In some cases where only one of you has debts, or under other conditions, it might be advisable to only have one spouse file. Since Washington is a community property state, even if only one spouse files, all of the couple’s community property may be subject to your bankruptcy.

Do I have to fill out forms?
Yes, unfortunately, and lots of them! You will receive a lengthy and very detailed questionnaire from our office. You will need to complete all of the questions, even if they do not necessarily apply to you or your situation. You must list all of your property and all of your debts. This includes debts owed to family members or friends or your mother’s antique wedding ring. For a Chapter 13, you will also have to complete a budget and help us complete your plan. Download worksheets here

When you sign your bankruptcy petition and schedules, you do so under penalty of perjury. At your initial court appearance, you will have to testify, under oath, that the list of assets and property are complete. The consequences of failing to list assets or debts can be very serious.

Do I have to go to Court?
Yes. About 30 to 40 days after your bankruptcy case is filed, you will have to attend a hearing with the Chapter 13 bankruptcy trustee. Notice of this meeting is mailed to all of your creditors who are invited to attend the meeting. This hearing is called the First Meeting of Creditors, or the Section 341 Meeting. At this hearing, the Trustee will swear you in and ask you questions about your bankruptcy petition, assets, debts and other matters. After the Trustee is finished asking questions, creditors will have the opportunity to ask you questions. Most of the time, creditors do not attend.

One of our attorneys will attend the hearing with you.

After this hearing, you will, most likely, not have to attend any other Court hearings.

What is a Chapter 13 plan?
It is a written plan presented to the bankruptcy court that states how much money or other property you will pay to the Chapter 13 trustee, how long your payments to the Chapter 13 trustee will continue, how much will be paid to each of your creditors, which creditors will be paid outside of the plan and certain other technical matters.

The Chapter 13 Plan must last a minimum of thirty-six (36) months and can last for a maximum of sixty (60) months.

What is a “regular source of income”?
You must have “stable and regular” income to be eligible for Chapter 13 bankruptcy. That doesn’t mean you must earn the same amount every month. But the income must be steady—that is, likely to continue, and it must be periodic—weekly, monthly, quarterly, semiannual, seasonal, or even annual. You can use the following income to fund a Chapter 13 plan:

• regular wages or salary
• income from self-employment
• wages from seasonal work
• commissions from sales or other work
• pension payments
• Social Security benefits
• disability or workers’ compensation benefits
• unemployment benefits, strike benefits, and the like
• public benefits (welfare payments)
• child support or alimony you receive
• royalties and rents
• gifts of money from relatives or friends, and
• proceeds from selling property, especially if selling property is your primary business

What is this Chapter 13 trustee?
The Chapter 13 trustee is a person appointed by the United States trustee to collect your payments, make payments to your creditors in the manner set forth in your plan, and administer your chapter 13 case until it is closed. In some cases the Chapter 13 trustee is required to perform certain other duties. You are always required to cooperate with the Chapter 13 trustee.

How much of a debtor’s income must be paid to the Chapter 13 trustee under a Chapter 13 plan?
Usually all of your and your spouse’s disposable income must be paid to the Chapter 13 trustee. Disposable income is income received by the debtor and his or her spouse that is not reasonably necessary for the support of the debtor and the debtor’s dependents.

You will begin making payments to the Chapter 13 trustee within 30 days after the debtor’s plan is filed in the court, and the plan must be filed with the court within 15 days after the case is filed. The payments must be made regularly, usually on a weekly, biweekly, or monthly basis. If you are employed, the Chapter 13 trustee will usually require the payments to be made by the debtor’s employer, via a wage deduction. Otherwise, the payments can be made directly by you.

What if I am temporarily unable to make my Chapter 13 payments?
If you are temporarily out of work, injured, or otherwise unable to make the payments required under a Chapter 13 plan, the plan can usually be modified so as to enable you to resume the payments when you are able to do so.

If it appears that your inability to make the required payments will continue indefinitely or for an extended period, the case may be dismissed or converted to Chapter 7.

What if I later decide to discontinue the Chapter 13 case?
You have the right to either dismiss a Chapter 13 case or convert it to Chapter 7 at any time for any reason.

What happens if my creditor has collateral securing the payment of debt?
A secured debt is simply a debt in which the creditor has a lien on some item of property to “secure” your payment of the debt.  The most common types of secured debts are a mortgage on a home and a lien on a car.

In Chapter 13 cases, secured claims are handled in one of two basic ways.
The first, is where past due payments on secured debts are paid, in equal installments, from your monthly bankruptcy plan payments . Your future payments (payments that come due after filing bankruptcy) are paid either from your monthly bankruptcy plan payments, or directly from you to the creditor.  When the bankruptcy plan has terminated, you remain obligated to make any payments remaining due on the secured debts.

The second method is called the “strip-down/stretch-out/cram-down” method.  This method is used either when the collateral is worth less than the amount of the debt, or when the number of payments left on a debt is less than the length of the plan. You can strip-down the creditor claim to the value of its collateral, stretch-out the payments to 36 months and pay the present value of the claim at a reduced interest rate (“cram-down “).  The ability to “refinance” your secured loans through this second method permitted by Chapter 13 bankruptcy lets you reduce the monthly payments and is sometimes the only way to have enough cash flow to keep your property.

At The Tracy Law Group, we represent a range of business and individual debtors in Chapter 11 cases.

We believe in the value of the Chapter 11 reorganization process in the right circumstances, where the fundamental business of the debtor is sound and a fresh start is needed.  Because Chapter 11 is expensive, not every business in trouble will warrant going through the process.  Chapter 11 bankruptcy operates to give the debtor breathing space to formulate and execute a business plan, with a variety of alternatives to utilize in formulating a plan, from sale of assets to reorganization or recapitalization.  We view our role as one of the legs of a tripod, working in collaboration with our client and financial professionals to add our legal knowledge and experience.

If you are seeking representation, we will first meet with you to talk about the background of your business, the problems that have caused you to seek the assistance of a bankruptcy lawyer, and your financial assets, liabilities and cash flow.  Once we have a preliminary understanding of your business, we can make recommendations about how to proceed and whether Chapter 11 is a good option.  If you decide to file a petition, we help you prepare the necessary documentation and work with your financial institution to address financing needs.  Throughout a Chapter 11 case, we work with your business and the financial professionals to utilize the Chapter 11 process and its incorporated advantages for debtors in dealing with your creditors, vendors, customers, employees and any other stakeholders. Ultimately, we aim for a plan of reorganization that can return your business to sustainable operations.

When faced with a difficult financial situation, bankruptcy need not be your first or only option.

People do not generally go into business or incur a debt without the intent to repay those debts. Often, people feel it is their responsibility to repay creditors at almost any cost. At The Tracy Law Group, we can negotiate with creditors to settle or restructure debts outside of bankruptcy. As a bankruptcy focused law firm, we provide leverage for clients negotiating with a creditor who would receive nothing if a client were forced into bankruptcy. Whether it is a business line of credit with a balloon payment or multiple credit cards, The Tracy Law Group can assist with negotiating a workout with creditors.

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