What is Chapter 7 Bankruptcy?
Washington Chapter 7 bankruptcy is the legal way to declare yourself unable to pay your debts. Chapter 7 in WA State allows people to eliminate unsecured debt and earn a fresh start in life.
To file a Chapter 7 in Washington, under the new law, your income and expenses must meet certain guidelines, demonstrating that you unable to pay your debts.
Most Washington Chapter 7 bankruptcy cases last about 90 days and relief from lawsuits and debt collectors is available immediately after the case is filed with the bankruptcy court.
At the conclusion of your Chapter 7 bankruptcy case, a discharge is entered by the bankruptcy court. A discharge is a court order signed by a bankruptcy court judge granting debt relief for all "dischargeable debts".
When the Chapter 7 bankruptcy is completed, you will receive a Court Order discharging your legal obligation to pay your creditors.
Debts eligible for discharge in Washington Chapter 7 Bankruptcy include:
Guide to Washington Chapter 7 Bankruptcy
As Washington Chapter 7 bankruptcy lawyers we have compiled some general information about filing Chapter 7 under the new Washington bankruptcy laws.
Please be advised, all information contained in this website is for informational purposes only, and does not constitute legal advice. Every bankruptcy case is different, so be sure to fully explain the facts of your case with us before we file your Chapter 7 bankruptcy case.
Consulting with an experienced Washington Chapter 7 bankruptcy attorney or law firm can save you time and money over the long run, and assures that you do it right the first time.
We hope this "Guide to Washington Chapter 7 Bankruptcy" below gives you the confidence to make an informed decision about your own situation and your future.
Please contact us or give us a call to set up your free consultation to see how we can help you with your Chapter 7 bankruptcy.
Getting Started With Chapter 7 in Washington State
To get started on your Chapter 7 case, the first step is to contact our Seattle bankruptcy office by phone or email for a free consultation.
The consultation takes about 30 minutes and usually ends with you feeling a lot better about your situation because you have made the decision to take control of your finances and resolve your debt problems.
When you come to your initial consultation, it is important to bring several documents with you, including:
- A precise calculation of your last 6 months gross income for you and your spouse if applicable
- A recent paystub
- Recent creditor statements (including mortgage, vehicles, student loans)
- List of monthly expenses
- Real estate market value of your property
- Foreclosure notice(s).
If you are unable to bring any of the following documents, we can discuss the information at our consultation.
Clients report the most difficult aspect of their bankruptcy case is making the decision to make an appointment.
Clients believe that this decision equates to financial failure.
However, we believe that the decision to consult with us is your first step in regaining your piece-of-mind and putting your financial problems in the past while focusing on you and your family's future.
Our bankruptcy law firm has experienced Washington bankruptcy lawyers who take great pride in assisting our clients in obtaining a fresh start from their debt problems.
Compassion is a central theme of our practice, and when you contact Attorney Bankruptcy Services, you can be rest-assured that we will listen carefully to your situation and offer friendly and non-judgmental legal advice and counsel tailored to solve your individual needs.
Washington Chapter 7 Eligibility
Under the new law, if your income and expenses meet certain guidelines, demonstrating that you are unable to pay your debts, you can usually file Chapter 7.
Generally, you can file Washington Chapter 7 bankruptcy if you pass what is known as the "means test".
The bankruptcy law changes in 2005 created a test for people filing Chapter 7 bankruptcy (and Chapter 13) called the means test.
The means test contains two components:
1. Median income test and
2. Disposable income test.
The median income test involves a comparison between Washington's median income for your family size against your actual household gross income earned over the six months prior to the bankruptcy filing.
For example, if you are an Washington resident, your family size is 3, and your household's income is $60,000.00, you would be eligible to file Chapter 7 bankruptcy since your income for your family size is below the current median.
See the table for 2005 median income below:
For more information on current median income figures, please see http://www.usdoj.gov/ust/eo/bapcpa/20061001/bci_data/median_income_table.htm
The disposable income test involves deducting various expenses from your monthly income. Deductions include income tax withholding, mortgages, auto loans, health care, as well as standard deductions for rent, food, utilities and living expenses.
If the amount left over after the deduction of your "allowed living expenses", multiplied by 60, is less than 25% of what you owe to your "nonpriority, unsecured" creditors or $10,000, you are eligible to file Chapter 7.
For example, let's say you have $150 left over each month, and owe $50,000 to your "nonpriority, unsecured" creditors. Since $150 x 60 = $9,000 and $9,000 is less than 25% of $50,000 (which is $12,500), you would be eligible to file Chapter 7.
To find out more about the allowed monthly expenses, please visit: www.wawb.uscourts.gov.
In addition to the means test, there are several other considerations to take into account when making the decision to file Washington Chapter 7 bankruptcy. A discharge is only available to those who have not received a discharge in Chapter 7 in the last 8 years. In other words, a Chapter 7 bankruptcy case can only be filed once every 8 years.
In addition, a Chapter 7 case should be avoided if the filer owns non-exempt assets. Non-exempt assets are liquidated (sold) by the Washington Chapter 7 bankruptcy trustee during the course of the bankruptcy case. Certain financial dealings with family members and other creditors are other reasons to avoid Chapter 7.
What Happens After The Bankruptcy Is Filed?
After your petition is filed with the Court, we will send you a copy of the Notice of Bankruptcy Filing, provide you with your filing date and bankruptcy case number, and advise you when to appear at the meeting with the trustee assigned to your case.
One of our lawyers will appear with you at the meeting, where you will be asked some questions about the information in your Petition.
Approximately three to four months after the meeting, the Clerk of the Court will mail you the Order of Discharge, which completes your case and discharges your debts.
Chapter 7 Bankruptcy Timeline
The typical Washington Chapter 7 bankruptcy case takes about 90 days from start to finish.
Before filing, you are required to complete a credit counseling course and provide our office with information and documentation required to be submitted to the bankruptcy case. The credit counseling course can be taken online at www.personalfinanceeducation.com.
The documents required to be submitted to our office may include the following:
- Paystubs (7 months)
- Bank statements (12 months)
- Check register(s) (12 months)
- An appraisal or comparative market analysis (CMA) on any real estate
- Life insurance policies
- 401K, Pension, Retirement, IRA statements (most recent)
- Bluebook value of your vehicle(s) (can be found at www.kbb.com)
- Tax returns (previous 2 years)
- Any other statements requested by the office.
Once we obtain the information and documentation requested by our office, we prepare a 50+ page Washington Chapter 7 bankruptcy case. Your Chapter 7 bankruptcy case is either emailed to you for your review and signature or you may schedule an appointment with our office to review and sign.
When reviewing the documents, do so carefully and provide us with any additional information (including creditors) that needs to be included in your Chapter 7 case filing.
After you have signed your Chapter 7 case, we file the case electronically with the United States Bankruptcy Court.
You will be required to appear in court 20-40 days after your case is filed. When you attend court, you must bring your driver's license, passport or state or military identification card as well as your social security card, W-2, paystub, 1099 or other document (not prepared by you) evidencing your social security number. Be advised, your tax return may not be used as proof of your social security number.
Your court hearing will last about 5 minutes. There are usually 12 hearings scheduled per hour, however all cases are different. Although this court hearing is called a meeting of creditors, creditors almost never appear.
The questions that you will be asked at your court date include but may not be limited to the following:
1. State your name and address.
2. Did you sign all the paperwork filed with the court?
3. Is the information true and accurate?
4. Have there been any changes in your financial situation since you filed your Chapter 7 case?
5. Did you list all of your assets and liabilities (debts)?
6. Do you have a domestic support obligation such as child support or spousal maintenance?
7. Have you filed bankruptcy in the eight years preceding this Chapter 7 filing?
8. How did you value your real estate or any other asset?
9. Have you had any financial dealings with relatives over the past two years?
10. Have you read the bankruptcy information sheet (this document is provided to you by our office as part of your Chapter 7 bankruptcy case)?
Once you have completed your court hearing, there is a mandatory 60 day waiting period in which creditors have the ability to object to your Washington Chapter 7 case. In order to object to your bankruptcy case, the creditor will likely be forced to prove fraud against you. If you have no charges within the 60-90 period prior to your Chapter 7 filing date, the creditor is required prove actual fraud which is nearly impossible to prove.
During this waiting period, you are required to take a second credit counseling course called Debtor Education. This second credit counseling course can be completed online at www.a1education.net.
If no creditor objects to your Chapter 7 bankruptcy case, then the bankruptcy court will enter a discharge 60 days after your meeting of creditors (court date). You will receive a copy of the discharge in the mail about 5 days after the discharge is entered by the bankruptcy court. We advise you to store the discharge in the same place you store other important documents such as tax returns.
The Automatic Stay
Debt relief and the elimination of bill problems are the obvious benefits provided by Chapter 7 bankruptcy. Another very important benefit of filing a Washington Chapter 7 bankruptcy is the protection against creditor harassment provided to you by the "Automatic Stay".
After you sign the Chapter 7 Petition and schedules prepared for you by us, we will electronically file all documents with the Clerk of the United States Bankruptcy Court.
Immediately upon filing, a protection Order is entered by the Court to protect you from all creditor action, including but not limited to harassing phone calls, lawsuits, threats, judgments, repossessions, and garnishments.
This protection Order is known as the "Automatic Stay".
The "Automatic Stay" protects you from all collection activities and harassment by all of your creditors. As stated above, your creditors may no longer:
- Harass you by telephone;
- Send you collection letters;
- File a lawsuit against you;
- Proceed with an existing lawsuit;
- Foreclose and sell your house;
- Repossess your car;
- Start or continue a wage garnishment.
The "Automatic Stay" is a powerful shield that provides you with peace of mind by virtue of the fact that you no longer have to worry about your creditors harassing you.
It allows you to continue with your day-to-day life, no longer having to worry about creditors and their annoying telephone calls and is the first step to a FRESH START with your household finances.
Benefits of Chapter 7 Bankruptcy
1. Discharge of Debt.
First and foremost, by filing Chapter 7 and obtaining a discharge, you are able to eliminate a wide array of unsecured debt.
This allows you to receive a fresh start and not have to stress over past debt problems. As stated above, the discharge is a court order that restricts creditors from collecting debt eliminated in Chapter 7.
Once your Washington Chapter 7 bankruptcy case has been discharged, eliminated debt is gone forever. In fact, if a creditor attempts to collect on a debt eliminated in Chapter 7 bankruptcy, the creditor faces steep civil penalties.
2. Automatic Stay.
When a Washington Chapter 7 bankruptcy case is filed, an automatic stay goes into effect immediately upon filing.
The automatic stay is a federal law (11 U.S.C. 362) enacted by Congress to prohibit most creditors from continuing collection efforts after a bankruptcy has been filed. Such collection efforts include phone calls, letters, lawsuits, judgments, garnishments, foreclosures and repossessions.
If a creditor continues collection efforts after receiving notice of the Chapter 7 filing, the creditor risks significant civil penalties. The automatic stay "flips the switch" on creditors who have been harassing you prior to filing bankruptcy and gives you the ability to pursue the creditor if they violate the automatic stay after your Chapter 7 bankruptcy is filed.
3. Retaining your assets.
Most Washington Chapter 7 cases are "no-asset" cases. This means that most people do not lose any assets when filing Chapter 7 bankruptcy.
State and federal laws called exemptions are available to protect all types of property from liquidation in Chapter 7. In the state of Washington, homes are protected from liquidation if there is less than $125,000 in equity. Equity means the difference between the value of the home and the mortgages and other liens on the home.
Additionally, there is currently an (approximately) $11,000 exemption to protect all personal property (separate exemption is available for household goods) for a single filer and (approximately) $22,000 for husband and wife if you do not need to use a homestead exemption.
4. Credit Repair.
This may sound contrary to what you may have heard, but Chapter 7 bankruptcy can actually improve your credit.
One of the main components of the credit score and your credit worthiness is the debt-to-income ratio ("DTI"). The DTI compares the amount of your debt against your income.
Prior to your Washington Chapter 7 bankruptcy filing, your DTI is likely quite high given credit card and other unsecured debt balances. After you receive a discharge in Chapter 7, your DTI decreases substantially.
Lowering your DTI, combined with obtaining or re-affirming credit lines after bankruptcy may result in a significant improvement in your credit score after your Chapter 7 filing.
In fact, you will receive several offers for new credit during your Chapter 7 case. Clients report to me that they are shocked at how easy they were able to obtain credit after their Chapter 7 bankruptcy case is discharged.
5. Fresh Start.
In addition to the benefits described above, the psychological benefit of relieving yourself of debt and obtaining a fresh start may be the biggest benefit of filing Chapter 7.
The stress of debt can result in marital and family strife as well as sleepless nights and difficulties at your job.
The piece-of-mind gained after a Chapter 7 filing is an invaluable component in all Chapter 7 bankruptcy cases.
Most clients feel the weight of the world fall off their back after meeting with our attorney and learning that there is an answer to their debt problems.
Disadvantages of Chapter 7 Bankruptcy
There are several disadvantages to filing Chapter 7 bankruptcy that must be thoroughly evaluated before filing.
Most of these disadvantages involve problems that can arise during your Washington Chapter 7 case.
1. Dealings with family members.
First, if you have repaid family members over the past year (and in certain circumstances over the last three years) over certain dollar amounts, the Chapter 7 trustee will initiate legal proceedings against the family member to reclaim the funds received by the family member over the last year. This is called a preference since you have chosen to repay a family member instead of your other creditors. In fairness to the other creditors, the trustee will reclaim the preferential payment and disburse it pro-rata amongst all creditors during your Chapter 7 case.
In addition to payments to family members, any transfer of assets to a family member in the three years prior to your Chapter 7 bankruptcy filing must be disclosed and discussed with our attorney before you file your case. If an asset is transferred to a family member, the Chapter 7 trustee will likely initiate a lawsuit against the family member in order to set aside or rescind the transfer. The Chapter 7 trustee will then sell the asset and disburse the proceeds of the sale to your creditors.
As you can see, it is vitally important to discuss financial dealings with family members when meeting with our attorney in order to protect your family member from a lawsuit in your Chapter 7 bankruptcy case.
2. Recent credit activity.
If you have made charges in the last 60-90 days prior to your Washington Chapter 7 filing, such charges may be deemed fraudulent in your Chapter 7 case. There is a presumption of fraud for any and all charges made immediately prior to your Chapter 7 filing date. If you have made charges prior to filing your Washington Chapter 7 bankruptcy case and the creditor files a lawsuit against you for fraud, you may be forced to repay these sums as well as interest and attorney's fees incurred by the creditor to sue you. Before meeting with us be sure to calculate all charges you have made in the 90 days before our meeting. Please also disclose these charges to us at your meeting so we can properly advise you on how to avoid problems in your Chapter 7 bankruptcy case.
3. Losing Assets.
Because Chapter 7 is a liquidation bankruptcy, all non-exempt assets will be sold by the Chapter 7 trustee and the proceeds distributed to your creditors. If you fail to disclose an asset in your Washington Chapter 7 bankruptcy case, you will likely lose the asset even if you could have claimed an exemption to protect the asset. Assets that people sometimes fail to disclose in Chapter 7 are automobile accident claims, employment/disability claims, inheritances, interests in trusts, and money owed pursuant to a promissory note or other debt. Chapter 7 bankruptcy trustees are experienced in locating assets and have access to databases that can track property ownership throughout the United States. I liken a Chapter 7 trustee to a forensic accountant in terms of their ability to find undisclosed assets. Therefore, it is important to disclose all assets to our attorney when discussing the possibility of a Chapter 7 filing.
The Chapter 7 Trustee
The Chapter 7 case trustee is appointed to administer the case and liquidate the debtor's non-exempt assets. In the most cases, all of the debtor's assets are exempt or subject to valid liens, so a trustee usually has no assets to sell.
These are called "no asset" cases.
If the debtor has non-exempt assets or if the trustee later recovers assets to liquidate for distribution to unsecured creditors, the creditors are given an opportunity to file a form stating the basis of their claim against the debtor or the debtor's assets.
The filing of a bankruptcy petition creates an "estate," and the trustee becomes the temporary legal owner of the debtor's property. The estate consists of all the debtor's legal or equitable interest in property, including property owned or held by another person. The estate includes tangible and intangible assets, such as insurance claims or lawsuits for damages.
The trustee can sell non-exempt property as well as property with a market value in excess of the sum of any security interest or lien and the allowed exemption the debtor holds in the property. Objections to debtor's exemption claims must be filed within 30 days of the date a creditors meeting is completed.
Washington Chapter 7 trustees are not judges. They are usually lawyers who have significant experience in bankruptcy and debt-related cases. Most are professional, easy to deal with and compassionate towards your case.
Debts not eliminated in Chapter 7:
Although Washington Chapter 7 bankruptcy eliminates many types of unsecured debt, there are certain debts that cannot be discharged in a Washington Chapter 7 bankruptcy, such as:
- State and federal tax debts (there are some tax debts that are eligible for discharge)
- Debts not listed in your Chapter 7 case
- Child support, alimony and maintenance obligations
- Debts assigned to a spouse in a divorce decree (these debts are dischargeable to the creditor, i.e. Discover card, but not to the ex-spouse)
- Student loans, both federal and private
- Traffic tickets, parking tickets, criminal restitution
- Debts resulting from an automobile accident where alcohol or drugs were involved
- Debts involving fraud or fiduciary malfeasance.
To learn more about non-dischargeable debts, please discuss your questions with our bankruptcy attorney as there are other options to pursue when dealing with these types of debts.
Objections in Chapter 7 Bankruptcy - How Can My Case Be Dismissed?
In some abusive Chapter 7 cases, the United States Trustee will file a request with the bankruptcy court to dismiss a Chapter 7 case. This happens for a couple reasons.
First, if you fail the means test or earn too much income relative to your expenses, the U.S. Trustee will request that your case be dismissed.
Second, if you have failed to list assets, you will not only risk losing the asset(s) but also the discharge in your Chapter 7 bankruptcy case.
As long as you are forthright in providing information to us, it is highly unlikely that the U.S. Trustee will file a motion to dismiss your Chapter 7. If your situation is one where the U.S. Trustee may file such a motion, we will advise you accordingly. In most cases, we will advise that you file a Chapter 13 instead of a Chapter 7.
After your Washington Chapter 7 has been discharged, there are a couple things you can do to re-establish your credit.
First, pay all debts not discharged (i.e. student loans) on time.
Second, think about applying for a secured credit card. If you choose to obtain a secured credit card, use it wisely and pay off the balance in full each month on time.
Third, if you have re-affirmed any debts in your Washington Chapter 7 bankruptcy case, be sure to pay these debts on time.
Finally, we recommend you obtain a copy of your credit report shortly after your discharge to ensure that all debts were properly reported as "discharged in Chapter 7".
If debts are not properly reported, you should dispute the inaccurate reporting with the relevant credit bureau (i.e. Equifax, Transunion, Experian).
Contact Our Washington Chapter 7 Bankruptcy Attorneys
We look forward to speaking with you.
To receive a free consultation regarding your (or your friend or family member’s) debt problems, please contact us today (206) 442-9500.