Bankruptcy FAQ

Bankruptcy Frequently Asked Questions

Which form of bankruptcy should I file?
Chapter 7

Chapter 7 is the easier, quicker form of bankruptcy. As soon as you file a bankruptcy petition, all collections stop—that includes phone calls, garnishments, law suits, foreclosures, etc. If creditors receive anything in a Chapter 7, it’s from the liquidation of property. Most people do not lose any property in a Chapter 7 because it is exempt from collections. It is important to talk to an attorney about whether your property is exempt. If your household income is over the median income for the state of Washington, you may be required to file a Chapter 13 bankruptcy instead. Click here for a list of the median incomes, state by state, in the U.S.

Chapter 13

Chapter 13 can be fairly complex but is essentially a repayment plan that lasts three to five years. The amount you pay depends on your income and expenses. As with a Chapter 7, once a Chapter 13 is filed, all collections stop, however, you are also afforded longer-term protection from some creditors, such as the IRS or a mortgage company trying to foreclose. In addition, Chapter 13 can bring more relief by allowing you to catch up on a mortgage, back taxes, child support, pay off a car loan, or even reinstate a driver’s license that has been suspended for unpaid tickets. Click here for a list of the median incomes, state by state, in the U.S.

 

What should I bring to my first consultation?
  • A basic idea of your monthly expenses.
  • Your last six months of pay stubs (or proof of other income such as a social security award letter)
  • Your last six monthly bank statements for all of your accounts
  • Your last four tax returns.
  • Know the value of your property—how much your car or house is worth and the balance of any loans. You can use on line valuations such as Kelley Blue Book or Zillow as a starting point.
  • You should also be aware of:
    • Any money or property transferred to insiders, such as close relatives, in the last two years.
    • Any unique property you might own. Examples could include: a fraction of land inherited in another state, a personal injury law suit, inventory in a business, money people might owe you, and tax refunds.
What happens to my debt if I file bankruptcy?

The short answer is that much of it is simply not paid. Financial institutions figure that some borrowers will simply not be able to pay and charge interest rates accordingly. If you owe money to an individual and want to pay it voluntarily after your bankruptcy is over, that is OK, but you do not have to. The final order in a bankruptcy is called a “discharge.” This is an order prohibiting creditors from trying to collect your debt ever again. It could remain on your credit report for 10 years.

Not all debt is covered by the discharge. Some debts like student loans, most back taxes, and fines like parking or speeding tickets are not covered by the discharge. If you are making payments on a house, car, or big-ticket item, you can keep the property as long as you keep making payments. You can also “surrender” the property back to the bank if you cannot make the payments or no longer want the property. In a Chapter 13, these payments can be restructured and included in a consolidated repayment plan.

In a marriage, must both spouses file bankruptcy?

In a marriage, both spouses generally file bankruptcy. In community property states such as Washington, a spouse who files alone should be careful because all property acquired during the marriage is considered to be owned by both parties. If a spouse files alone, he or she must list the other spouse’s property on the bankruptcy and protect them with an exemption to keep it safe from creditors.

Debts taken out during marriage are also considered to belong to both spouses regardless of who signed the loan, as long as the debt was used to support the couple during marriage. If a debt is in only one spouse’s name and that spouse files bankruptcy, the other spouse is still at risk of debt collection.

If a married couple is getting divorced, sometimes it would make sense to file a bankruptcy together before the divorce. That would eliminate a big issue in the divorce—who pays the debt. However, if a divorce decree is entered before the bankruptcy is filed, the spouse who is ordered to pay any marital debt still has to pay it. The original creditor can still collect from the spouse who did not file bankruptcy and that spouse can go back to divorce court to enforce the payments.

What happens to my property if I file bankruptcy?

Information provided in the FAQ links is intended to help you understand and prepare for some of the more common issues encountered in bankruptcy law. Please be advised that bankruptcy cases can be complex and multifaceted. The information here should not be construed as legal advice in your particular case.

Information provided in the FAQs are intended to help you understand and prepare for some of the more common issues encountered in bankruptcy law. Please be advised that bankruptcy cases can be complex and multifaceted. The information here should not be construed as legal advice in your particular case.