What is Bankruptcy?

Filing for bankruptcy is a legal process in which qualifying individuals or consumers and businesses can wipe out or discharge or repay certain debts while under the legal protection of the federal bankruptcy court. After you file, all creditor harassment must stop. This is called the "automatic stay", and it is one of the most important bankruptcy tools.

The history of bankruptcy.

If you qualify, filing a Washington State bankruptcy petition is one of your federal legal rights. The U.S. Constitution provides for the discharge of debts from time to time. The reason for this is that back in good old England and in other countries, there used to be debtor’s prisons, and people who could not pay their debts would go to prison. Imagine what would happen if that were true today! No one would want to buy a house or a car, or use a credit card, if that could result in them going to prison. Nowadays, most countries have similar bankruptcy laws to those found in our Bankruptcy Code.

The truth is, many people just like you, especially in today’s bad economy, have things happen in their lives that make it impossible to pay all of their bills. This is where our Washington bankruptcy lawyers can step in and help. If you qualify, the Federal and Washington State bankruptcy laws are here to protect you.

The bankruptcy laws were specifically designed give you protection from your creditors, and allow you to get a fresh financial start.

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The risk of losing possessions after filing bankruptcy is much lower than what most people think. Bankruptcy law provides exemptions that protect property from being taken to pay creditors. If you are making payments on a piece of property, such as a car, a house, appliance or other big ticket item, you just need to be able to keep making payments on that debt, either directly during a Chapter 7 or through a Chapter 13 repayment plan.

In a Chapter 7, creditors are paid through the liquidation of assets – from selling property and converting it to cash. However, most people who file Chapter 7 keep all their property. That is because the bankruptcy exemptions are fairly generous. They protect 100% of a retirement account and usually protect the equity a typical debtor might have in a house or a car.

There are specific exemptions for household goods and a “wildcard” exemption that covers any other property. Some forms of property people may not think of are refunds for unfiled tax returns, settlements of law suits or commissions for sales that are pending. Often this kind of property can be claimed as exempt as well. You can choose either federal or state exemptions in Washington. Our bankruptcy attorneys are skilled at maximizing our clients' protection and relief under the bankruptcy laws.

A good bankruptcy attorney knows how to properly evaluate and qualify clients based on their unique circumstances. This in turn leads to an informed decision about whether or not to file under the federal or the Washington State bankruptcy laws. For example, if a debtor does not need the $125,000 homestead exemption in Washington, he or she usually will choose federal exemptions to take advantage of the $11,975 wild card exemption (which can be doubled for married couples).

If a Chapter 7 debtor is making payments on property, the creditor will want a reaffirmation agreement. For mortgages and cars, the reaffirmation is almost always for the same terms as the original contract. For other property, a debtor can usually negotiate better terms. Because the reaffirmation agreement takes the debt outside the bankruptcy discharge, the debtor should be very careful about signing this agreement.

As your bankruptcy progresses, your bankruptcy attorney will discuss these issues with you in more detail. While seemingly simple on the surface, these are often complicated decisions that require a lot of thought. For example, if a reaffirmation agreement is signed and the debtor defaults later, he or she could be liable for the loan even after a bankruptcy discharge.

A Chapter 13 plan offers more ways of paying installments for a piece of property. It also offers more protection for property that is paid in full. Mortgages and car loans can be paid in a Chapter 13 and any delinquent payments can be caught up. This is one of the primary advantages of pursuing a Chapter 13. If you have some property that is not exempt in a Chapter 7, you can keep it by filing a Chapter 13 and paying creditors as much as they would receive from the sale of the property in payments over five years.