Chapter 7 in Washington State and Seattle - "Fresh Start" Bankruptcy

Known as a "Fresh Start" or "Straight" bankruptcy, Chapter 7 bankruptcy allows a person to eliminate most or all of his or her debt, such as medical bills, personal loans and most credit card charges, while being allowed to keep certain property (assets which do not exceed certain limits called "exemptions").

In most chapter 7 cases, all of an individual's property will be exempt (meaning the asset will remain his or her property). However, property which is not exempt is sold, with the money distributed to the creditors.

In many cases, an individual may keep their home or car (secured debt), provided that they continue to make current payments and are up to date on the loan.

Chapter 7 does not eliminate:

• Student loans, except extreme hardship cases
• Debts for most taxes
• Debts for alimony, maintenance or support
• Debts for fines, penalties or criminal restitution
• Debts for personal injuries caused by driving intoxicated

Chapter 7 is the most commonly filed bankruptcy and can allow for a new start. More and more Americans find themselves struggling with debt they cannot control. Chapter 7 bankruptcy allows for their debt to be discharged and lets them get in control of their financial situation with a fresh start.

QUESTIONS:

What is a discharge?
A Chapter 7 discharge is an order signed by the Bankruptcy Judge declaring all of your eligible debt to be discharged. The Order of Discharge creates a permanent injunction against a creditor whose debt is discharged from attempting to collect the debt from you. The Order of Discharge is normally entered about 3 - 4 months after the Chapter 7 case is filed. Your attorney should discuss with you what debts cannot be discharged.

What are exemptions?
Certain assets owned by the debtor have what is known as an exempt status. This means the debtor can protect them from the reach of creditors and the Chapter 7 Trustee. The exemption will not apply to a mortgage or lien voluntarily placed on the asset by the debtor. The availability of exemptions and how to properly and effectively claim them is something to be discussed with your attorney.

What is a reaffirmation?
Because most debt is discharged in bankruptcy, secured creditors may want the debtor to sign a document known as a Reaffirmation Agreement. Signing this agreement results in the debtor waiving his Chapter 7 discharge and agreeing to continue to make payments as called for by the original loan documents. This allows the debtor to keep his home, car or furniture. The decision whether or not to reaffirm a debt is a serious one and needs to be discussed with your attorney so that all options are understood. If the debtor stops paying on the asset after a Reaffirmation Agreement is signed, then the asset can be foreclosed or repossessed and a deficiency judgment obtained for the difference. If a debtor changes his mind and wishes to terminate or rescind a Reaffirmation Agreement, discuss with your attorney the possible option of a recission agreement.

What is a redemption?
In Chapter 7, if an asset is exempt, it can be purchased or redeemed from the creditor by paying its present market value in a lump sum. The balance of the debt will be discharged. An example would be furniture that has a depreciated value at the time of bankruptcy of $700.00 and the balance of the debt on the furniture is $2,000.00. The furniture can be redeemed for $700.00 and the $1,300.00 difference is discharged. The process of redeeming assets should be discussed with your attorney.

Are certain debts non-dischargeable?
Yes. The most common non-dischargeable debts are alimony, child support, certain property settlement agreements, certain income tax liabilities, Department of Revenue sales tax liability, Internal Revenue Service pay roll tax liability or trust fund liability, and many student loans. In addition, certain debt created by fraud, embezzlement or conversion can be found to be non-dischargeable.

Do I have to list all of my creditors?
Yes. Bankruptcy law requires a full and complete disclosure to whom the debtor owes money. Bankruptcy schedules are signed under the penalty of perjury and the debtor will be asked under oath at the meeting of creditors if all debts were disclosed.

What is the meeting of creditors and what happens?
The meeting of creditors is conducted by the Chapter 7 Trustee. The debtor is examined under oath concerning his or her assets and debts. Creditors who choose to attend the meeting either in person or through their attorney can ask questions concerning anything relevant to the case. As a practical matter, creditors rarely attend the meeting of creditors. It is mandatory for all debtors to attend the meeting of creditors. Your attorney will accompany you to the meeting.

Can I transfer ownership of my home, car, boat, collectibles, tools, etc. to someone else to keep those items out of bankruptcy?
No. Such transfers within one year of filing Chapter 7 bankruptcy may violate 11 U.S.C. §548 of the federal Bankruptcy Code.It is very important that you discuss these issues with an attorney prior to filing a bankruptcy proceeding. A debtor who has been found guilty of such transfers may lose his entire discharge. In addition, the debtor may be subjected to criminal prosecution.

Can creditors ask to have their debt held non-dischargeable?
Yes. Creditors have approximately 100 days after the filing of the Chapter 7 bankruptcy case to file a lawsuit asking that the debt be held non-dischargeable. Certain debt has no such time limitation.

How long does bankruptcy remain on my credit bureau report and can I obtain credit before that time period runs?
A Chapter 7 bankruptcy can be kept in the public records section of your credit bureau report for 10 years. Once your Chapter 7 discharge is entered, if certain income and employment conditions are met, financing may be available. If certain conditions are met new automobile financing may be is available.

Will my bankruptcy affect a co-signor on the debt?
Yes. The bankruptcy will not protect the non-filing co-signor. The creditor may continue to try to collect against the co-signor. Creditors have this right even if the bankruptcy is never filed. Additionally, the co-signor's credit bureau report may show that the joint debt was included in bankruptcy. These situations should be discussed with your attorney.

Contact the Law Offices of Timothy J. Wilson at:
(206) 381-3210 or (253) 874-5826.

Note: The above-discussion is only a brief statement regarding the laws of a chapter 7 bankruptcy. If you are considering filing for bankruptcy, it is highly recommended that you consult an attorney regarding your specific situation to determine whether bankruptcy is appropriate, and if so, whether a chapter 7 or chapter 13 bankruptcy is recommended.