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After you have read through the questions and answers in this section, you may still have a question you would like answered. Anastasia L. Karson or another attorney in her office will answer up to three questions about general personal bankruptcy for you. The answer will not apply to your individual case because the attorney can only answer questions about your individual case after you have provided information about your case at your free initial consultation. If you have a question which is not already answered below, click here
What is a chapter 7? In a chapter 7, you simply ask the court to give you a fresh start by wiping out your debts. In return for getting rid of your debts, you turn all your property over to the court to be liquidated and distributed to the creditors in partial payment. You list all your property, but you are allowed to claim certain property as "exempt" and keep it even though you have filed bankruptcy. It is your attorney's job to help you list your property in such a way that most or all of it is exempt and that you get to keep it. In most cases which are properly prepared, all the property can be claimed as exempt so that there are no assets to be liquidated and distributed to the creditors. The attorney's will take care of listing your property so that you are allowed to keep the maximum amount based upon the information you provide at your free initial consultation. If you would like information regarding the free initial consultation, click here.
Will I be forced to file a chapter 13? In most cases, you will not be forced to file a chapter 13 if your attorney prepares your papers correctly. The 2005 bankruptcy law requires that your attorney prepare a very intricate calculation called the “means test.” The means test form is six pages long and makes your tax return look like a coloring book. If your means test is not properly prepared, you may be unnecessarily forced into a chapter 13 or your case may be dismissed. Only an experienced bankruptcy attorney can properly advise you and prepare your means test.
Can taxes be discharged? Income taxes and state taxes are not dischargeable in a bankruptcy unless they are over three year old. The three years is measured from when the tax return is due. For example, the income tax return for calendar year 2003 was not due until April 15, 2004. Three years from April 15, 2004, is April 15, 2007. Consequently, bankruptcies filed after April 15, 2007, will discharge income taxes due for calendar year 2003 and before if certain other conditions are met.
What about money I borrowed to pay my taxes? If you borrowed money or took a cash advance on your credit card to pay a federal tax which is not dischargeable, the loan or cash advance will not be discharged in the bankruptcy. This does not apply to state taxes.
Are child support and alimony discharged in a bankruptcy? No. There is a very narrow exception to this rule which will probably not apply to your case. If the right to collect the support has been assigned to someone other than the federal government, a state government or any political subdivision thereof (such as DSHS), the support obligation can be discharged in bankruptcy.
What if I owe $30,000 in child support from 15 years ago? Child support which became due a long time ago may be barred by the statute of limitations, but the more recent support will still be due.
Would a chapter 13 help? A chapter 13 plan can spread your past due support payments out over a 3-5 year period, but you will have to pay 100% of what is past due. A chapter 13 plan will also not be able to prevent collection of payments which are due after the plan is filed.
Is there anything I can do? Yes. If your financial situation has deteriorated to the point at which you are considering bankruptcy, you should go into state court and seek a modification to reduce the support. This will not help you with support which is already past due, but it can keep the situation from getting even worse. The attorney's also handle modifications of child support. If you would like to learn more about modification, you may visit their companion web site at divorceinwa.com or call their office at (509) 326-3600.
Are there any exceptions? The law contains one exception, but it is not a very useful one. If you want to have a student loan discharged, you will have to file a complaint and show that not discharging the debt will create an "undue hardship" on you or your dependents. You may believe it is an undue hardship to have to repay the loan, but that does not mean the judge will agree with you. The student loan collection company will almost certainly force you to go to trial on the matter which means that you will incur substantial expense in trying to avoid repaying the student loan and there is no guarantee that you will win.
Are traffic tickets, fines, and restitution dischargeable in a chapter 7? Not as long as they are payable to the governmental unit (usually a court) which ordered the payment or to a collection agency which is only collecting for the governmental unit. If the government assigns ownership of the ticket or fine to a private collection agency, however, the obligation becomes dischargeable in bankruptcy.
What about collection fees? The collection agency charges which were added to the ticket or fine before the bankruptcy will be discharged in the bankruptcy, but the actual amount of the fine or ticket will still be owed. If you do not pay the ticket or fine right after the bankruptcy, the collection agency will add more collection charges after you file.
What property am I allowed to keep? You are allowed to keep only the property which you declare and which fits into the allowable “exemptions.” The first step is to disclose all your property. If you do not disclose it, you cannot claim it as exempt. If the trustee later finds out about the undisclosed property, you will lose it and you may go to jail. After you have disclosed all your property, you can then fit the maximum amount of it into the allowable exemptions.
What about my home? You are allowed to exempt $18,450-$125,000 in equity in your principal place of residence, depending on whether you choose the state or federal exemptions. Equity is the difference between what you could sell your home for and the amount of any mortgages or other liens against the property. Under certain circumstances you may be able to exempt more than this amount by factoring in sale costs. The attorney's will advise you how best to protect your home based upon the information you provide at your free initial consultation. If you would like information regarding the free initial consultation, click here.
What about my car? You are allowed to exempt about $2,500-$5,000 in equity in one or two vehicles depending on the exemptions you use. Under certain circumstances which are too complex to explain here you may also be able to exempt a vehicle worth substantially more and you may be able to keep more than 2 vehicles. The attorney's will choose the best exemptions for your vehicles based upon the information you provide at your free initial consultation. If you would like information regarding the free initial consultation, click here.
What about my retirement? Most retirement benefits are fully exempt if you choose the correct exemption. The attorney's will choose the best exemptions for your retirement benefits based upon the information you provide at your free initial consultation. If you would like information regarding the free initial consultation, click here.
What else is exempt? There are state and federal exemptions for household furnishings, business equipment, clothing, livestock, life insurance, and too many other types of property to list here.
What happens to the property which does not fit into the exemptions? The trustee takes possession of any property which is not exempt, liquidates it, and distributes the proceeds to the creditors. This is why it is so important to have someone who knows all the exemptions. The attorney's will choose the best exemptions for you based upon the information you provide at your free initial consultation. If you would like information regarding the free initial consultation, click here.
Should I transfer my non-exempt property to a relative? Absolutely not! The trustee will almost certainly find out about it and retrieve it from your relative to be liquidated and distributed to the creditors. In addition, you may lose your right to have your debts discharged. Before you transfer or sell any of your property you should thoroughly investigate whether or not it can be fitted into one of the exemptions. Many persons have transferred property and lost it when they could have kept it and fitted it into one of the exemptions.
Is there any way to save property which is not exempt? If you have property which will not be exempt in your bankruptcy, you can sometimes convert it into exempt property. In addition, you can file a chapter 13 to protect your non-exempt property. The attorney's will advise you on whether you can properly convert your non-exempt property into exempt property based upon the information you provide at your free initial consultation. If you would like information regarding the free initial consultation, click here.
Can I keep my house and not pay the mortgage? No. A bankruptcy wipes out your promise to pay the mortgage company, but it does not remove the mortgage from your house. If you do not pay, the mortgage company cannot sue you in court, but it still has the right to foreclose on your house. When you file, you have the choice of continuing to pay the mortgage company and keeping your house or allowing the mortgage company to foreclose on the house and not owing the mortgage company anything. If you want to keep your house but are behind in the payments, a chapter 13 will stop the foreclosure and allow you to make up the arrearage over 3-5 years. The attorney's will advise you about keeping your house based upon the information you provide at your free initial consultation. If you would like information regarding the free initial consultation, click here.
Can I keep my car and not pay the loan company? No. A bankruptcy wipes out your promise to pay the loan company but does not remove the loan company from the title to your car. If you do not pay, the loan company cannot sue you in court, but it still has the right to repossess your car if you are delinquent in your payments or if there is a clause in your loan agreement that allows the loan company to repossess if you file bankruptcy. When you file, you have the choice of (1) allowing the loan company to repossess the car and not owing the loan company anything; or (2) continuing to pay the loan company and keeping your car if there is no clause in your agreement that allows the loan company to repossess just because you filed bankruptcy. If you want to keep your car but are behind in the payments, a chapter 13 will allow you to pay off the car over 3-5 years. The attorney's will advise you about keeping your car or other vehicle based upon the information you provide at your free initial consultation. If you would like information regarding the free initial consultation, click here.
What is a security interest? This is best explained by a hypothetical. If you go to a store and buy a couch at Fine Furniture Store on credit, you sign a promise to pay the purchase price and you take the couch home. Fine Furniture Store has accepted your promise to pay as payment for the couch. Now you own the couch, and Fine Furniture Store owns your promise to pay. When you file bankruptcy, your promise is wiped out. That does not mean that Fine Furniture Store can come and get the couch back from you because you paid for the couch with your promise. You own the couch. If Fine Furniture Store wants to be able to repossess the couch, it must have you sign a paper when you purchase the couch which grants Fine Furniture Store a "security interest" (it must use those words) in the couch. The security interest attaches your promise to the couch so that Fine Furniture Store can repossess the couch when you file bankruptcy and sell the couch to satisfy your promise to pay. If a creditor does not have you sign a written agreement listing the collateral and stating that you are granting them a "security interest" in the collateral, the creditor cannot repossess the collateral even if you bought it from that creditor.
How do I know if I signed any security interests? You read through your purchase slips and any loan documents you signed looking for the words "security interest."
What do I do if I find a security interest? Some security interests can be voided out in a bankruptcy so that you can keep the collateral and not pay the creditors. If the security interest cannot be voided out, you will have to decide whether to pay the creditor and keep the collateral or let the creditor take the collateral back, in which case you will owe the creditor nothing. In the case of a security interest which cannot be voided out, you also have the option of "redeeming" the collateral by paying the creditor the fair market value of the collateral in cash. The attorney's will advise you what can be done about the security interests in your case based upon the information you provide at your free initial consultation. If you would like information regarding the free initial consultation, click here.
What is the automatic stay? The "automatic stay" is a very powerful federal court order which is designed to stop creditors from seizing your property while the bankruptcy case is going on. It affects credit card companies, medical bill collectors, landlords, mortgage companies, and even the IRS. Creditors who are affected by the automatic stay must immediately stop harassment, lawsuits, garnishments, and all other attempts to make you pay them money. If they fail to cease collection efforts, they can be held in contempt of court and fined. Certain special types of debt collection are not stopped by the automatic stay, such as child support or alimony garnishments. The attorney's will advise you about which of your creditors will be stopped by filing a bankruptcy based upon the information you provide at your free initial consultation. If you would like information regarding the free initial consultation, click here.
When does the automatic stay begin? When your attorney files your properly prepared bankruptcy petition at the bankruptcy court, the automatic stay begins and the bankruptcy courts sends out notice of the automatic stay to all your creditors.
What is this notice? The time at which the creditors must cease collection is when they receive notice of the filing of the bankruptcy. The bankruptcy court normally sends out the notice 7-10 days after the filing, but sometimes the notices go out late. There are ways you can stop garnishments and lawsuits faster than waiting for the court notice to come out, and The attorney's will advise you about this.
What about foreclosures? The automatic stay also applies to home foreclosures. In a chapter 7 case the automatic stay only lasts for about three months, however, and the foreclosure can resume after the automatic stay is lifted. In a chapter 13 case the automatic stay can stay in place long enough for you to make up the past due payments.