Chapter 7 Bankruptcy

            Only the individual can decide if filing bankruptcy is right for him/her.  Our office is happy to discuss the situation with you and offer you possible solutions.  Should you decide that a Chapter 7 Bankruptcy filing is right for you, keep in mind that our office has 30 years experience.  John Brody is a former Bankruptcy Trustee.  John Brody keeps his bankruptcy fees very low, $600 for Kitsap County residents, to help those who most need debt relief.

            Chapter 7, otherwise known as "liquidation," is generally the simplest and quickest form of bankruptcy and is available to individuals, married couples, corporations and partnerships. A trustee (appointed by the court) gathers and sells your non-exempt property and uses the proceeds from the sale to pay your creditors.

            Most chapter 7 cases are "no-asset" case, which simply means that you do not have any non-exempt property for the trustee to sell.

            Federal bankruptcy laws provide for a "means test" which will determine whether you are eligible to file of Chapter 7 bankruptcy. If your income is below the median income for families in Washington, based on Census Bureau statistics, you will be eligible. If you make more than the median income for families in Washington, your income over the past six months is considered, along with mortgage and car payments, back taxes and child support due, and school expenses up to $1,650 per year. You won't be eligible for a Chapter 7 bankruptcy if, after deducting these amounts, and the living expenses provided in the Internal Revenue Service's national collection standards, you can still pay at least $6,000 ($100/month) to unsecured creditors over five years. If you don't qualify for a Chapter 7 bankruptcy, your only option would be a Chapter 13 bankruptcy.

            The U.S. Trustee Program will apply the median family income data to all cases filed on or after March 15, 2009. This median family income data will be adjusted again after the Census Bureau updates the data.

            For Washington, for cases filed after March 15, 2009, the median income for a single wage earner is $50,656; for a family of two, it is $63,521; for three, $69,577; and for four, $82,445. Add $6,900 for each individual in excess of 4.

            You must also obtain approved credit counseling before you can file bankruptcy and file any overdue tax returns within weeks of filing a Chapter 7 bankruptcy.

Filing Chapter 7

            A bankruptcy starts with the filing in bankruptcy court of the official petition and schedules These contain extensive schedules requiring a detailed list of all your debts, including:

• All priority debts (including taxes)
• All "secured" debts (including home mortgages and auto loans) that have property as "collateral"
• All unsecured debts of any kind

            Other information that must be provided on the schedules includes:

• The names and addresses of the creditors
• A list of all assets, including real estate and all forms of personal property

            It is extremely important that the Petition, Schedules and Statement of Financial Affairs be completed accurately. Debts that are not will not be discharged at the completion of the bankruptcy proceeding. Failing to list assets in an attempt to hide them from creditors may result in serious consequences, including the denial of discharge or charges of bankruptcy fraud.

            Creditors are immediately prevented from trying to collect on your debts through what is called an "automatic stay." The stay is designed to preserve your property and to give you a break from litigation.

            Anyone you owe - or anyone who wants to continue collection proceedings during the bankruptcy process - must show the bankruptcy judge, after a hearing, that there is "cause" to be allowed to continue with collection action (for instance, by showing that the property might deteriorate in value during the bankruptcy process).

            The trustee takes control of any property you do not get to keep. From the sale of your property, the trustee pays the expenses of the administration of the case, and then gives any remaining money to creditors with allowed claims, according to the priority of the claims (with claims that are "secured" by property being paid first). Any wages you earn after you file the case are yours, beyond the reach of creditors who had claims on the date you filed for bankruptcy.

341 Hearing

            After the bankruptcy is filed, you must appear at the "first meeting of creditors" (also called a "341" meeting ). The trustee can ask you questions under oath about your property and debts. Creditors can also question you on those subjects, but seldom do.

            Generally, the only responsibility you have after the 341 meeting is to cooperate with the trustee in providing any requested information.

            Creditors have 60 days after the 341 meeting to convince the bankruptcy court you shouldn't be allowed to jettison your debts.

            The trustee may review your income and expenses to see if you have enough money left after your current living expenditures to pay something to creditors.

What Can I Keep?

            In Washington, you have the choice of using either the federal exemption statutes or the Washington exemptions.

If you choose the federal exemptions, you can keep:

• Your home, including co-op or mobile home, to $20,200
• Life insurance payments for person you depended on, needed for support
• Life insurance policy with loan value, in accrued dividends or interest to $10,775
• Unmatured life insurance contract, except credit insurance policy
• Alimony, child support needed for support
• Pensions and Retirement Benefits, ERISA - qualified benefits needed for support
• $525 per item in any household goods up to a total of $10,775
• Health Aids
• Jewelry to $1,350
• Lost earnings payments
• Your motor vehicle to $3,225
• Personal injury compensation payments to $20,200, wrongful death payments, crime victims' compensation, public assistance, social security, unemployment compensation, and veterans' benefits
• Tools of trade up to $20,200
• Wild Card - $1,075 of any property plus up to $10,125 of any amount of unused homestead exemption

If you choose the Washington exemptions, you can generally keep:

• Your home, if you do not have more than $125,000 in equity in the house (today's value less costs of sale less payoff balances on all liens and mortgages)
• One motor vehicle for an individual, if you do not have more than $2,500 in equity (today's value less costs of sale less payoff balances on all liens and mortgages); you may exempt two motor vehicles for a community, up to $5,000 in equity
• Clothes, but not more than $1,000 in value in furs, jewelry and personal ornaments for any individual
• Books, up to $1,500 in value
• Family pictures and keepsakes
• Household goods, appliances, furniture and home and yard equipment up to $2,700 in value for an individual or $5,400 for the community
• Food and fuel for comfortable maintenance
• Other personal property, up to $2,000 in total value, including $200 in cash and $200 in bank accounts, savings and loan accounts, stocks, bonds or other securities
• Traceable past due, current, or future child support paid by or owed to the debtor
• Professionally prescribed health aids
• Personal injury awards, not including pain and suffering or compensation for actual pecuniary loss, up to $16,150, or the right to or proceeds of a payment for loss of future earnings of the debtor or a person upon whom the debtor was dependent as reasonably necessary for support
• Tools of the trade, up to $5,000 in value
• ERISA-qualified pension benefits
• Public employee pensions, including city employees, state patrol officers and volunteer firefighters
• Individual retirement accounts and annuities
• General assistance, old age assistance and child welfare benefits
• Crime victims', workers' compensation and unemployment benefits
• Child support
• Disability proceeds, avails or benefits
• Life insurance proceeds or avails as long as the beneficiary is not the insured
• Group life insurance policy or proceeds
• Annuity contract proceeds, up to $250 per month
• Fraternal benefit society benefits
• Property of a business partnership
• At least 75% of your earned but unpaid wages; the bankruptcy judge may authorize more for low-income debtors
• Library, office furniture and equipment and supplies of physician, surgeon, clergy or other professional to a total of $5,000
• Tools and materials used in another's trade up to $5,000
• $2,000 of any personal property, but no more than $200 in cash, bank deposits, bonds, stocks and securities

            A bankruptcy does not wipe out voluntary liens, like mortgages and deeds of trust, or tax liens. So the lender still has the right to foreclose if you do not pay. If you pay, everyone is happy. Remember, the lender does not want the property; it wants you to pay regularly on the loan. Foreclosure is a last resort for the lender if it concludes it can't get the owed money any other way.

            If you still owe money on the car, you can choose to reaffirm the debt to the secured lender. Under the new law, you have to reaffirm your car loan within 45 days after the "341 meeting." You no longer have the option of continuing your car payments without reaffirming the loan. Once the loan is reaffirmed, if you default on your payments and the car is repossessed, you are liable for the repossession deficiency.

            You also have the option to redeem the car within 45 days of the "341 meeting" by buying it from the secured creditor in a single payment for its present value

If you would like to discuss filing a Chapter 7 Bankruptcy, please call John P. Brody, Jr. at 360-876-6858 or e-mail him at brodylaw@wavecable.com.