Consumer bankruptcy provides debt relief and a fresh start through a discharge of qualifying debt. Bankruptcy is federal law and takes place in federal district bankruptcy court. Individual bankruptcy is typically filed under Chapter 7 or Chapter 13 of the Bankruptcy Code.
Chapter 13 bankruptcy reorganizes or ‘adjusts’ unpaid debts under the supervision of the Court. The debtor pays back only what he/she can afford over a period of three or five years. Of course, the Court has a lot to say about what the debtor can ‘afford’ and the resulting payback plans are typically rigorous and impose an austere life style for the duration. The debtor, working closely with his or her lawyer, develops a plan to pay back creditors out of disposable income. Upon completion of the plan, any remaining debt is simply written off or discharged.
Chapter 7 bankruptcy is a liquidation bankruptcy in which the debts of the debtor are eliminated or ‘discharged’ following the liquidation of non-exempt personal and/or real property of the debtor. Some property is exempt from liquidation as determined by Oregon state law. The bankruptcy trustee, a lawyer appointed by the court, will determine what non-exempt property can reasonably be liquidated to raise capital with which to pay creditors. It typically takes about 90 days to complete a Chapter 7 bankruptcy but could take longer in some cases.
Both Chapter 7 and Chapter 13 have advantages and disadvantages that the debtor needs to consider. As your lawyer I can help you decide if bankruptcy is the right step for you and what alternatives you may have. If you would like to learn more about your options, I have offices in Tualatin, near Hwy 5, and in downtown Hillsboro.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy allows you to discharge most if not all of your debts as they exist at a single point in time. Certain debts such as most tax liability, child support obligations, and student loans typically cannot be discharged through bankruptcy. Bankruptcy laws are complex, you should consult a lawyer to determine what debts you can and cannot discharge.
To qualify for a Chapter 7 bankruptcy you must have a gross annual income less than that of your state’s median income as adjusted for your family’s size. In Oregon the median income for an individual is $59,174 while for a family of 4 the median is $71,593 (Oregon median income 2009). Those that qualify for Chapter 7 are subject to the dispossession of all non-exempt property by the appointed trustee. Whatever cannot reasonably be liquidated is returned to you. Whatever can be reasonably liquidated is liquidated and the proceeds used to pay off debtors. Any surplus is returned to you.
Much of the debtors personal property is exempt from liquidation. Some examples include a certain amount of equity in a car, Individual Retirement Accounts, clothing, etc., but not valuable jewelry and valuable art, etc. When a bankruptcy is filed an Automatic Stay goes into effect. This ‘stay’ stops foreclosures, repossessions, debt collections, wage garnishments, and lawsuits. Typically most of these will be permanently stayed by the court when the discharge is issued but creditors may move to have the stay lifted on specific property if, for example, the debtor has no equity in that property. What property is exempt and what is not varies in individual cases so you should check with your lawyer to determine what property you can protect and what may be at risk.
The beauty of Chapter 7 bankruptcy is that in a relatively short time, typically 90 days, most, if not all, of your debt is simply wiped away, discharged. Hence the idea of a fresh start. You are now free to go out an acquire new debt which can be surprisingly easy. Just be careful and remember that if you get into trouble again it will be another 8 years before you can file another Chapter 7 bankruptcy petition.
Chapter 13 Bankruptcy
Chapter 13 is an alternative for those who are not eligible for Chapter 7 because of their higher level of earnings. Chapter 13 allows a debtor to reorganize or ‘adjust’ their debts under the supervision of the Court. This reorganization takes the form of a plan worked out between the debtor, with the help of their lawyer, and the trustee, the lawyer who represents the interest of the creditors. Plans are structured to allow the creditor to pay off existing debt over a 3 to 5 year period. At the end of the repayment period, if all payments have been made according to the plan, the remaining unsecured, dischargeable debt will be discharged.
Chapter 13 bankruptcy tends to be a better option for those who have regular income and non-exempt property they prefer to keep. Debtors who do not qualify for a Chapter 7 bankruptcy due to a gross annual income above the state median are possibly still eligible to file a Chapter 13 bankruptcy. In a Chapter 13 bankruptcy, the debtor is not subject to property liquidation. Additionally, some types of debt that are not dischargeable under Chapter 7 can be discharged through Chapter 13. Like Chapter 7, a Chapter 13 filing results in an Automatic Stay that stops foreclosures, repossessions, debt collections, wage garnishments, and lawsuits.
Chapter 13 bankruptcy is often a good option for people who are facing short-term financial setbacks, such as a job loss or illness. It also may be a good choice for someone who is suddenly faced with unexpected expenses. Chapter 13 plans are voluntary and you can dismiss them freely. If you have a temporary interruption in income or an unexpected increase in your expenses, you can ask the court to modify your plan to reduce the payments, or to obtain a suspension of the payments for a couple of months. If you are going to miss a payment or you think you may miss a payment you should consult with your lawyer immediately. If you miss the payments and don’t take action to modify or get a suspension, the court will dismiss your case. If your case is dismissed short of discharge, the fact that you filed does not bar you from eligibility to file bankruptcy again.
Alternatives to Bankruptcy
Bankruptcy is not the best option for everyone. Some debtors may be better served by working out an alternative payment agreement with their creditors. These agreements, typically called a workout, are legally binding agreements that allow the debtor to pay an outstanding debt over a period of time thus avoiding the rigors of bankruptcy. As your lawyer I can help you understand what your options are, the advantages and disadvantages of those options, and help you decide which option to pursue. Further, as your lawyer I can assist you with the successful implementation of your decision. Even if you are sure you need to file for bankruptcy, it is worth your time to discuss alternatives with a lawyer. You will be more confident that you made the right decision should you ultimately file a bankruptcy petition.
If you are having financial trouble and would like to discuss your options, I have two offices convienently located in Hillsboro and Tualatin, and serve the Hillsboro, Beaverton, Tigard, Tualatin, Sherwood, and Lake Oswego communities. Should you decide on bankruptcy, I can guide you through the process and represent your interests. Call for a consultation where I can review your financial position and explain the relevant law. Contact me at your convenience.