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Chapter 7

You get a fresh start with bankruptcy, but as with most court cases, there’s fine print you must know.

Chapter 7 bankruptcy is essentially a fresh start financially. Typically, most debts are discharged, you’re given a chance to get back on your feet, and you won’t be harassed by creditors.

However, there is the “fine print” part to a Chapter 7 bankruptcy hearing. This article highlights 6 things you need to know about Chapter 7 bankruptcy discharge. Professional counsel, a bankruptcy attorney in your area, can help with more than documentation and filing: they can also explain all the fine print in simple language.

1- What Discharge Means for Liability and Creditors

A Chapter 7 bankruptcy discharge releases you the debtor from liability for most of your debts, while also stopping collections against you by creditors. If you owe a creditor a large amount of money, they may still get some money, but only via the trustee selling nonexempt assets you have. They will have no basis for collecting past debts.

2- What Debts are Discharged

Typically, you need to talk with professional bankruptcy attorneys to help you with this part of Chapter 7 discharge. You can expect the majority of your debts to be discharged, but some of your assets may be too valuable and could be sold. For instance, if you live alone in your home valued well over $100,000, you lose it. There are ways around that, especially if you work with professional bankruptcy attorneys.

3- How Fast the Discharge Occurs

You can expect a fast discharge in most cases unless a party of interest–someone you owe money–objects to the discharge. This process is usually 60-90 days after filing Chapter 7 bankruptcy and meeting with the court.

4- Grounds for Rejection of Chapter 7 Bankruptcy

You can be rejected for discharge in Chapter 7 bankruptcy via a variety of means, depending on your particular situation. If you, for instance, failed to keep adequate financial records, couldn’t explain your loss of assets, or committed perjury, you can be denied discharge.

5- Secured Creditors

Secured creditors may still have the right to seize property in some cases. This is where counsel is most important. It gets complicated, but if you bought a car and made an outside agreement that you wanted to keep it, you could make payments on the debt. The creditor would have the right to repossess the car if you failed to make payments, even with the discharge.

6- What Debts Aren’t Discharged

You can’t be discharged of all outstanding debts. This includes alimony, child support, some taxes, debts for education or loans, debts for death or personal injury causes by by your motor vehicle, debts for injury to another person, and others.

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Chapter 13

When most people first learn of chapter 13 bankruptcy they have a lot of questions about what the process is like, what to expect and whether it is right for them. Here are 13 facts you need to know about chapter 13 to help you be debt free and determine if Chapter 13 bankruptcy is for you.

1- Debtors keep control of their assets.

They run their businesses. There is no trustee tasked to sell assets. If an asset is worth more than the amount allowed to protect it, then the consumer has to pay for the value through their plan.

2- Repayment to creditors can be little or even nothing.

It depends on the debtor’s income and the value of their assets. I have filed cases where the consumer pays $1 to unsecured creditors like credit cards, but the results will vary based on available disposable income and household size.

3- Chapter 13 plans can be changed during the case.

If income falls or is temporarily interrupted, the plan can be changed to accommodate the change by filing a motion to modify your payment plan. If your income falls significantly you could always convert your case to a Chapter 7 bankruptcy if you qualify.

4- The case can be dismissed at any time.

You can get out of chapter 13 bankruptcy if you want at any time, unlike Chapter 7 bankruptcy where you are generally locked into the case.

5- The bankruptcy automatic stay protects the debtor for the 3 -5 years while in an active chapter 13 plan.

No foreclosures, no repossessions and no garnishments will be able to hurt you moving forward.

6- Mortgage defaults can be cured over as long as five years.

Additionally you can even request a loan modification while in the Chapter 13 bankruptcy and then dismiss your case once approved if you feel you don’t need the bankruptcy after obtaining a loan modification. Chapter 13 bankruptcy filings can also be very useful if you need to stop a foreclosure sale immediately but don’t intend to stay on the repayment plan. This helps if you need to buy some time to short sell the property or make other arrangements moving forward.

7- The interest rate on car loans can be reduced to today’s market rate.

This is called a cram down and the rate used is called the till rate which is about 3.25%. This can only be done if the car was purchased more than 910 day prior to filing.

8- Mortgage liens that are totally underwater can be eliminated forever in chapter 13 bankruptcy.

This usually applies to 2nd mortgages that can be stripped away by filing a motion to strip the lien. So if your first mortgage is worth more than your home, then you may be able to strip the second mortgage which would allow the second mortgage to be stripped and treated like a general unsecured creditor who doesn’t need to be paid back in full.

9- The IRS has to go along with the repayment terms in your plan, without interest.

If the taxes owed are recent, then they would have to be paid in full over the duration of your chapter 13 plan.

10- Tax debt that is older than 3 years from the date it was due may be discharged in Chapter 13 bankruptcy as long as your tax returns have been filed more than 2 years ago and your taxes have not been reassessed recently.

New taxes are considered priority debts and must be paid in full. Older taxes can be treated as unsecured debts, just like a credit card or medical bill.

11- Certain types of Debts to former spouses, other than support, can be discharged.

This is generally not the case in Ch. 7 bankruptcy. If the monies owed is for maintenance or support of children, the debt will never be discharged. If however the monies owed is for attorney fee’s or other non support payments, the debt may be dischargeable in chapter 13 bankruptcy.

12- If you have had your license suspended, you can get it back by filing for Ch. 13.

Some penalties may need to be paid off in your plan, while others may be discharged. Your attorney will need to know about each ticket and number so that they can list them completely in your bankruptcy filing. The court or the department of licensing will need to be notified of your filing and you can provide your case number once your case is filed.

13- Attorneys fees for the case can be paid after filing.

Although most attorney’s charge a fee prior to filing but it may be 1/3 of the total cost. Additionally the court filing fee of $310 needs to be paid, but in Washington the court allows you to pay only $100 of the filing fee at the time of filing if you have not had a previous case dismissed without paying the full filing fee.

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Bankruptcy Fequently Asked Questions

At Whitten & Whitten all first time consultations are free of charge.

We do not require you to bring any information, however if you are currently employed, your last two paycheck stubs could be helpful in helping you decide the best course of action.

Generally not. Once you come into the office we can run a credit report for you which should provide us with the information that we need. However, you must remember, that it will finally be your responsibility to list ALL of your creditors and debts. If you leave off or omit a creditor, that debt will not be discharged and you will ultimately be responsible for it. This is why it is so important to speak with an attorney if and when you are first considering bankruptcy.

Yes. When you file a bankruptcy, in almost every case, the bankruptcy court will issue an order to your creditors which prevents them from continuing any collection efforts against you outside of the bankruptcy court. Moreover, in almost every case, once you have filed for bankruptcy the court orders that all garnishments, home foreclosures, and car repossessions are suspended.

No. The bankruptcy courts have provided rights and exemptions for individuals so they may keep their retirement pensions and 401Ks. In fact, by filing bankruptcy an individual can actually protect their retirement better if they have not filed.