If you are trying to learn about bankruptcy and figure out how to handle your debt obligations, you are most likely looking into several options in order to lift the stress and burden that overwhelming debt can bring. During your research perhaps a friend or family member advised that bankruptcy may be an option for you, but you just don’t understand how it works.
Financial lawyers who practice primarily in the area of bankruptcy law, such as Symmes Law Group, PLLC, understand your experiences and want to help. Filing bankruptcy may allow you to get a hold of your financial situation, wipe away debt, and not have to live in fear every time the phone rings thinking there may be a debt collector on the other line looking to get paid or a process server out to serve you legal papers to start the collection process in court. With that said, most consumers have questions about bankruptcy as they don’t know how it works or whether they qualify.
So, here are 5 essential questions consumers want to know about bankruptcy. I also discussed this on 1150am KKNW radio which you can listen to here:
Do I Qualify for a Chapter 7 Bankruptcy?
Many consumers can qualify for chapter 7 bankruptcy, but they also have to consider whether it is a good idea to do so. In order to qualify for chapter 7 bankruptcy you must either have 50% or more of your debt being related to business activity, have your median income for your family size be below your states median income for your family size, or pass something called the means test if you are above median but have outside of the ordinary expenses such as medical or child support which make it so you don’t have any disposable income left every month. Your debts, unless they are a type that is non dischargeable in bankruptcy or will be ongoing obligations post filing, are not considered on the means test.
Next you will want to make sure if you file chapter 7 bankruptcy, that you will not lose any of your assets to a bankruptcy trustee who is assigned to your case to liquidate assets that are valued at more than the amount your are allowed to keep. Everybody who files bankruptcy is allowed to protect assets using what are called exemptions. In Washington State we can use state or federal exemptions but you cannot combine them together. For instance, the Washington state exemptions allow for debtors to protect $125,000 in a home but offer less protections for other assets. The federal exemptions on the other hand offer more protections for other assets, but not as much protection for a home. Common exemptions include auto, household goods and a wildcard. You would want to talk to your bankruptcy attorney to determine which set of exemptions make the most sense.
If I don’t Qualify for Chapter 7 Bankruptcy, Does Chapter 13 Bankruptcy Make Sense?
If you don’t qualify for chapter 7 bankruptcy due to your household income or you may be at risk of losing an asset, you may want to consider filing chapter 13 bankruptcy which allows for a repayment plan over 3-5 years. If you are a below median income debtor you may qualify for a 3-year plan, vs. if you are an above median debtor you will be on a 5-year plan. The amount you will have to pay will be based on your means test result/income and the value of any non-exempt assets in addition to a trustee fee of 9% for having the chapter 13 trustee manage your payments to creditors.
Chapter 13 makes sense for those looking for a repayment plan to avoid creditor calls and garnishments, have an ability to pay something to creditors, don’t have a lump sum to offer as a settlement to creditors and are not looking to incur more debt while in the bankruptcy plan. Chapter 13 bankruptcy is also a great option for those looking to make up arrears over 3-5 years on a primary residence in which any potential foreclosure sales would be immediately stopped due to the bankruptcy automatic stay upon the case being filed.
Finally, chapter 13 bankruptcy is only open to consumers and not businesses and does have debt limits of up to $419,275 for unsecured debts and up to $1,257,850 in secured debt.
What Other Alternatives Are there to Bankruptcy?
If you are don’t qualify for chapter 7 or chapter 13 then you may want to look into settling your debts if you are able to offer your creditors a lump sum. Many creditors will accept payments of 50% of the balance owed on average if you are at least 180 delinquents. Debts most likely to settle are those who have gone to 3rd party debt collectors.
If you are looking to get a loan modification on your home or delay a foreclosure sale, then the foreclosure fairness mediation may be an option for you if your mortgage loan is with a major lender and it is regarding your primary residence in Washington State.
What Happens After I file Bankruptcy?
If you have decided that you want to file for bankruptcy then you will need to get your attorney the required information which includes a questionnaire, last 6 months of paystubs, last 2 years of tax returns and complete a credit counseling class. You will then need to review and sign your documents prior to filing and will then receive a court date.
Your court date will be in about 30-45 days after your case is filed and is called the meeting of creditors. Typically, creditors do not show up to this meeting, but it is a chance for your bankruptcy trustee and any creditors to ask you any questions about your financial affairs while under oath. A typical meeting lasts for about 5 minutes, although there are usually about 10 other debtors at the meeting at the same time as you so you should plan for being at court for about an hour. During the Covid 19 pandemic, court meetings are being held telephonically.
After the court meeting you will need to complete a second credit counseling class and in chapter 7 bankruptcy you should receive your bankruptcy discharge in about 90 days after your case was filed. The case can stay open longer if a chapter 7 trustee is investigating any assets you may have. In a chapter 13 case your first plan payment will be due 30 days after your case is filed and your payment will come out of your paycheck or you can pay online. Your confirmation hearing, where the judge approves your plan will be in about 45 days after your initial court date, but you don’t need to attend this meeting. In the meantime, creditors will file claims in your case and you may need to make amendments to your plan until you have a plan the chapter 13 trustee will approve. If you make your payments on time for the duration of your plan, you will receive a discharge order at the end of the plan and then your case will close.
For most people, after they receive their bankruptcy discharge their credit scores will improve and negative items will be wiped out, although the actual bankruptcy public record can remain on your credit for up to 10 years.
Where Can I Find a Great Bankruptcy Attorney?
If you have decided that exploring filing bankruptcy is an option for you, then you can look no further than Symmes Law Group, PLLC to help you with your debt relief needs. With that said the best place to look for a bankruptcy attorney is to ask family and friends while also checking out online reviews of attorneys to find the attorney that you would want to work with. Not all attorneys are equal, response and knowledgeable in the bankruptcy arena so you will want to ask relevant questions such as how long have you been practicing bankruptcy? will you are a paralegal handle my case? And what is the turnaround time on getting my case filed?