Chapter 7

If you find yourself struggling with overwhelming debt in Seattle, Washington, you know how stressful and exhausting the experience can be. Chapter 7 bankruptcy may be the fresh start you have been looking for because it can eliminate most unsecured debt. It is often seen as one of the more straightforward forms of bankruptcy.

Our Seattle bankruptcy attorneys have years of experience helping people wade through the complexities of bankruptcy throughout Washington. We have a deep understanding of state and federal regulations and can guide you through each step of the process.

Chapter 7 is also known as liquidation bankruptcy and it is when you eliminate most of your unsecured debt, including credit card bills, medical expenses, and personal loans. Unlike a Chapter 13 bankruptcy, which requires a repayment plan, Chapter 7 discharges your qualifying debts without requiring any future payments.

Washington state has specific bankruptcy laws and exemptions you need to know about because they can affect your case overall.

• Homestead Exemption (RCW 6.13.030): This protects up to $125,000 of equity in your primary residence.
• Vehicle Exemption (RCW 6.15.010): This allows you to keep up to $3,250 in vehicle equity per person.
• Personal Property Exemptions: This statute covers essential household goods, clothing, appliances, and certain tools of the trade.
• Wildcard Exemption: This protects up to $13,000 in personal property if you don’t use your homestead exemption.
• Retirement Accounts (RCW 6.15.020): Most tax-exempt retirement accounts like a 401(k) and IRA are fully protected in a Chapter 7 bankruptcy.
• Public Benefits Exemptions: Social Security, unemployment benefits, and workers’ compensation are also usually exempt from these bankruptcy proceedings.
• Wages Exemption: This protects a portion of your earned but unpaid wages.

There are certain requirements you need to meet in order to be seen as eligible for Chapter 7 bankruptcy in Seattle.

• Pass the Means Test: You need to show that your income is below the state median for a household of your size. Or, you must demonstrate that you have limited disposable income.
• Complete Credit Counseling: You also have to follow through and complete a court-approved credit counseling course. It must be done within 180 days before filing.
• No Recent Bankruptcy Filings: You might not be eligible if you have already filed for Chapter 7 in the last eight years or Chapter 13 in the last six years.
• No Fraudulent Behavior: Bankruptcy courts can choose to dismiss any case they feel involves fraudulent activity or recent asset transfers.

As of the latest data, the median income for a household of one in Washington is approximately $83,000 annually. If your income exceeds this threshold, you may still qualify for Chapter 7 bankruptcy but it will depend on your expenses and other factors.

If you find that your income exceeds the median, you may need to file for a Chapter 13 bankruptcy instead. You will then have the opportunity to reorganize your debts rather than liquidate them.

You will find that filing for Chapter 7 bankruptcy is a process that involves multiple steps.

1. Pre-Bankruptcy Credit Counseling: As mentioned above, this is a mandatory step when filing for Chapter 7 in Seattle. These credit counseling sessions usually last between 60 and 90 minutes and give you an overview of your financial situation, including outlining any possible alternative there may be to bankruptcy.
2. File the Petition: To begin the bankruptcy process, you will file a petition with King County Court. It will include detailed information regarding your income, debts, assets, and monthly expenses.
3. Appointment of a Bankruptcy Trustee: Once the petition is filed, King County will assign you a bankruptcy trustee. They will review all of your documents, sell any non-exempt assets, and distribute the proceeds to your creditors.
4. The 341 Meeting: Within a few weeks of filing, you will need to attend a meeting of creditors. During this meeting, the trustee and creditors will ask you questions about your financial situation. This helps ensure that all of the information in your petition is accurate.
5. Asset Liquidation: If you have non-exempt assets, they will be sold and used to pay your creditors. Many people who file Chapter 7 in Washington State, however, don’t usually lose property because of the state’s generous exemptions.
6. Discharge of Debt: Within three to six months of filing, the court will issue a discharge order. This will eliminate most of your debts and give you the fresh financial start you need.

While Chapter 7 bankruptcy is a way for you to get a fresh financial start by discharging most unsecured debts, it isn’t going to be the best option for everyone. There can be long term consequences like a significant impact on your credit score and potential asset liquidation.

There are several alternatives to Chapter 7 bankruptcy in Seattle, Washington, that you can consider when you want to manage your debts without having to go through the bankruptcy process.

• Debt Settlement: This is when you or a debt settlement company negotiate with creditors to reduce the total amount of debt you owe.
• Debt Consolidation: This involves combining multiple debts into a single loan or credit account with a lower interest rate. You can simplify your debt payments and potentially lower your monthly payments by spreading them out over a longer period.
• Debt Management Plan: A DMP is a formal agreement between you and a credit counseling agency to pay your debts over time. The agency works with creditors to lower your interest rates, waive fees, and create a single monthly payment plan.
• Chapter 13 Bankruptcy: This is a reorganization of your debt and allows you to repay everything over a three to five-year time period. Once the plan is complete, the remaining eligible debt is discharged.

Filing for Chapter 7 bankruptcy can prove to be a challenging and complex process and requires a fair amount of planning to protect your assets and ensure your debt is discharged. An experienced Seattle bankruptcy attorney can guide you through the process, educate you about your exemptions, and handle all creditor negotiations on your behalf.

With the right legal support on your side, you can maximize your debt relief options and begin moving forward with much more confidence and a fresh financial start.

Chapter 7 offers a quick fresh start for debtors who do not have the income to pay their debts. It is known as a liquidation bankruptcy because in a Chapter 7, a debtor’s property can be liquidated or sold off to pay creditors. Most Chapter 7 debtors do not lose any property because the law offers fairly generous exemptions to the liquidation process. In Washington, debtors can choose either state or federal exemptions but cannot use both sets of exemptions. In general, state exemptions are better for someone with significant equity in their home, and usually, federal exemptions are better for those who do not.

For Chapter 7 debtors who are making payments on a car, house, or other expensive item, they can surrender the property and walk away from the debt or continue to make payments and keep the property. Creditors who loan money for cars, homes, etc. are known as secured creditors because the loan is secured by a lien on the property. Generally, liens survive bankruptcy, though the bankruptcy discharges wipe out a debtor's obligation to pay the debt. Secured creditors prefer that debtors sign a reaffirmation agreement where the debtor agrees that the obligation to pay the debt is not discharged.  Car companies can repossess a car if the debtor does not sign a reaffirmation agreement, even if they remain current on the loan after bankruptcy. Many car companies still allow the debtor to keep making payments without a reaffirmation, but they do not have to. Usually, mortgages and car lenders will not lower the amount of loan in the reaffirmation. Other secured creditors, such as lenders for furniture, electronics, and appliances may work with you to lower the debt.

To qualify for a Chapter 7, a debtor must pass a means test to show that their income is low enough to get the fast fresh start it offers without abusing the bankruptcy system. The means test starts by looking back on a debtor’s last six months of income. If last six months' income was less than the average income for the debtor’s household size, the means test goes no further, and the debtor is deemed to not be abusing the bankruptcy system. If it is above the median income, expenses are deducted to see if any monthly income is available for unsecured creditors, such as credit cards, medical bills, and signature loans (debts that are not backed up by property). Some deductions are the debtor’s actual expenses, such as secured debt payments, health insurance, taxes, child support, and day care. Some expenses are limited by the IRS tax repayment regulations, such as food, clothes, rent, and transportation. If the means test shows an ability to pay some unsecured debt, the presumption of abuse can be overcome by showing special circumstances, such as a sudden change in household size or income or that the last six months' income was unusually strong and unlikely to be continued. The bankruptcy court can dismiss a Chapter 7 or force the case to be converted to a Chapter 13 repayment plan bankruptcy if it finds the debtor abused the system by filing a Chapter 7.

If you're struggling with debt and want to know if Chapter 7 is right for you, contact the experienced Seattle, WA bankruptcy attorneys at Washington State Attorneys. During your free consultation, we'll let you know if bankruptcy is the best option for your unique situation.