For Future Bankruptcy Clients
If you are considering filing bankruptcy, please call us to schedule a free consultation appointment. We can meet with you in the evening, or on weekends. We handle bankruptcy cases for people who live in the northwest part of Oregon (Counties of Clackamas, Clatsop, Columbia, Marion, Multnomah, Tillamook, Washington, and Yamhill). Our fees are affordable. For more information about our fees, read the answer below to, “How much does it cost to file bankruptcy?”
Q. What can bankruptcy do for me?
For most people, the goal of bankruptcy is to discharge debts. Once a debt is discharged, you no longer have any legal obligation to pay back the debt. In fact, attempts to collect a discharged debt are against the law. The most common types of debts that are discharged in bankruptcy are credit card debt and medical debt.
A few types of debt cannot be discharged, or are difficult to discharge. Spousal support and child support are not dischargeable. Unpaid taxes are dischargeable under certain conditions, but these conditions are rarely met. Student loan debt is not dischargeable unless paying it back imposes an “undue hardship,” a legal standard many people are unable to meet. Criminal restitution is usually not dischargeable.
Bankruptcy also stops most collection efforts, including lawsuits, foreclosures, and garnishments. Filing bankruptcy does not stop all collection efforts. For example, filing bankruptcy does not stop criminal prosecutions or obligations to pay spousal support and child support. Filing bankruptcy stops some efforts by the government to collect unpaid taxes, but not all efforts.
Even though some kinds of debts are not dischargeable and some collection efforts are not stopped, the bankruptcy laws require you to make numerous disclosures about your finances, including all your assets, sources of income, debts, leases, contractual obligations, etc.
Q. Okay, discharging my debts sounds great. But are there drawbacks to filing bankruptcy?
Your creditworthiness and your ability to borrow money (qualify for loans, obtain credit cards, rent property, etc.) will be negatively affected by filing bankruptcy. This means your application for credit or to rent property may be denied, or you will be charged a higher interest rate and/or asked to pay a higher deposit. Note that your ability to obtain student loans may not be affected by filing bankruptcy, depending on the type of loan you apply for.
If you receive a discharge of debts, that will be reflected on your credit report for ten years after a Chapter 7 bankruptcy, and seven years after a Chapter 13 bankruptcy. In fact, for your protection, it is against the law if debts that you discharged in bankruptcy appear on your credit report as not being discharged. If your credit score is already in the gutter due to collection lawsuits and not paying bills, then your credit score may receive a modest improvement after you discharge your debts. In our experience, most people who discharge debts in bankruptcy will receive credit offers in the mail after filing bankruptcy. The terms may not be very favorable, and you may want to throw them away, but most people are not completely shut out of obtaining credit after bankruptcy.
Also, filing bankruptcy itself is public record, and a background check will probably always reveal that you filed bankruptcy. It is against the law for government agencies and private employers to discriminate against someone for filing bankruptcy. However, you may need to pass a credit check and maintain a decent credit score for certain types of jobs (such as jobs that require handling money; accountants; government jobs in the military, law enforcement, and airport security).
Q. I don’t want to file bankruptcy. What are my other options?
Nobody wants to file bankruptcy. You can always try to negotiate your debts. However, we do not like to see people cashing out retirement accounts, or using a home equity line-of-credit, to pay-off credit cards, without speaking to a bankruptcy attorney first. We also do not like to see people paying monthly amounts on debts that don’t seem to go down, due to penalties and interest.
We can help you pay-off your debts in lesser amounts than what you owe. However, these are the factors that lead to successful resolutions:
- The creditors causing you problems are unsecured. Unsecured creditors typically receive nothing or very little in bankruptcy, and thus are more willing to receive at least something. Credit card debt and medical debt is frequently unsecured.
- You are willing to file bankruptcy if the creditors do not want to negotiate.
- You are no longer incurring debt to the problem creditors.
- You have money, or can access money from family and friends, that you can use to pay the problem creditors in one lump sum.
- You do not have too many problem creditors. To be successful, each creditor will need to agree to take a lesser, lump-sum amount. Otherwise, you end up paying money to settle some debts but then having to pay more money to file bankruptcy.
- You don’t have an urgent need to file bankruptcy, such as to stop a garnishment or a foreclosure. This gives us time to negotiate.
If most or all of these factors apply to you, we can discuss your specific situation during your free consultation appointment.
We have a poor opinion of debt management companies who promise to help consolidate and pay-off your debts. Read Debt Settlement Companies. Are They Safe? for why.
Q. Will I have to go to court if I file bankruptcy? Who is the bankruptcy trustee?
Most people who file bankruptcy do not have to go to court, and if they do, it is a very short hearing on a limited issue.
You will have to attend a meeting with the bankruptcy trustee about one month after filing bankruptcy. This meeting typically lasts five to ten minutes, and is held at the trustee’s office. The trustee’s office typically schedules 3-4 cases per half hour, so they do not spend a lot of time with you. It is not a court hearing, but it is audio-recorded. We will fully prepare you for this meeting. Your creditors can attend this meeting, but they rarely do.
The bankruptcy trustee is a lawyer tasked with determining whether you have any property that should be paid to your “unsecured” creditors. Because you will disclose everything you are required to disclose in your bankruptcy case, we can advise you in advance what to expect.
For your information, creditors are “unsecured” if they have no ability to take any of your property if you fail to pay what you owe. In the event you don’t pay them, their only option is to sue you and obtain a judgment against you. After they obtain a judgment, they can garnish your wages and potentially take some of your property depending on what you own. Credit card companies and medical providers are the most frequent kind of creditors who are unsecured. “Secured” creditors have the option of taking your property if you fail to pay what you owe, such as by foreclosing on your home or repossessing your car.
Q. Can I keep my stuff if I file bankruptcy?
Generally, you can keep all or most of your property when you file bankruptcy. Property is broadly defined and essentially means anything of value (money, houses, vehicles, leases, retirement accounts, etc.). If you have assets or sources of income that most people do not have (such as a rental property, or income that is not from wages or self-employment), be sure to mention them to us in your free consultation appointment so we can determine what happens to them if you were to file bankruptcy.
The property you get to keep in bankruptcy are referred to as “exemptions.” The bankruptcy laws separate your property into different exemption categories (such as real estate, household goods, jewelry, clothing, etc.) and allow you to exempt a certain value of that category of property. Some exemption categories have no valuation cap, such as for health aids. The value you will assign to your property is the price it would sell for at a used goods store (or if real estate or a vehicle, the fair market value in its current condition).
To make things confusing, you must choose either the exemptions under Oregon law or under the Bankruptcy Code (usually called “federal” exemptions). If you have lived in different states in the last two years, you may be required to use another state’s exemptions, or the federal exemptions. Generally, the federal exemptions are more favorable than Oregon’s exemptions unless you own a home that has a significant amount of equity in it.
To make things more confusing, if you borrowed money in order to purchase property, such as a house or a vehicle, or pledged property as collateral for a loan, the amount you still owe does not count toward your exemption.
To illustrate how this works, here is a simple example: You are single, have lived in Oregon for the last two years, and you own one car currently worth $9,000, but still owe $4,000 on it. You are current on your car payments. Let’s also assume all your other property is exempt, and that Oregon’s exemptions are better for you than the federal exemptions. Under these circumstances, the net worth of the car is $5,000 ($9,000 value minus $4,000 debt), and Oregon allows you to exempt $3,000 in value, leaving $2,000 that is not exempt. If you wanted to file bankruptcy and keep your car, you would have to pay $2,000 to your creditors. You could pay this amount over a few months in a Chapter 7 bankruptcy, or over a three-to-five year period in a Chapter 13 bankruptcy.
Now let’s assume the same facts except that you owe $12,000 on the car. Here, there is no net worth to the car so the vehicle exemption goes unused. If you did not want to keep the car, you could give it back to the lender and discharge the debt of $12,000. If you wanted to keep your car after bankruptcy, read the answer below to the question about what happens to your vehicle when you file bankruptcy.
Q. I own a home but have a mortgage. What happens to my house if I file bankruptcy?
If you are current on your mortgage payments and want to keep your home, you can most likely keep your home depending on how much equity you have. You can determine how much equity you have in your home by estimating how much your home is worth and determining how much you still owe on the mortgage(s). Subtract the mortgage debt from the home value. This number is the equity in your home. This number could be positive or negative.
Under Oregon’s homestead exemption, you can protect up to $40,000 ($50,000 if you are married and jointly file bankruptcy with your spouse) of home value. Under the federal homestead exemption, you can protect up to $23,675 ($47,350 if you are married and jointly file bankruptcy with your spouse) of home value. Which homestead exemption you use will depend on the value of your other property.
Fortunately, if your equity is less than the homestead exemption, or not too far above the homestead exemption, then you will be able to keep your home. The bankruptcy trustee generally cannot take your home if there is no money left for your creditors after payment of (1) the costs of a hypothetical sale (2) the mortgages (3) the trustee’s commission, and (4) the value of your homestead exemption. This analysis can be complicated, but we can properly advise you once we have all the information we need from you. If you have too much equity in your home, but want to keep it, one option to consider is for you to not file bankruptcy and instead to borrow money against your home’s value, if it pays off all your debts and you can afford the monthly payment.
If you have home equity that is double or triple the homestead exemption, you are at risk of losing your home in a Chapter 7 bankruptcy. However, you can keep your home in a Chapter 13 bankruptcy if you can afford to pay to your creditors, over a three-to-five year period, the nonexempt value that they would have received if your home was sold.
If you have negative equity (i.e., your home is “underwater”), and you owe more on the first mortgage than your home’s value, this means that any other mortgage or liens on your home are no longer secured to your home. In a Chapter 13 bankruptcy, these mortgages and liens can be “stripped” off the property and treated like unsecured debt, which often means you will pay less than what you owe and discharge those debts. In a Chapter 7 bankruptcy, certain types of liens can be “stripped” off the property, but mortgages cannot.
If you are BEHIND on your mortgage payments and want to keep your home, you may be able to keep your home in a Chapter 13 bankruptcy if you can catch up on those payments over a three-to-five year period. If you file a Chapter 7 bankruptcy, the court will permit the mortgage lender to begin or continue foreclosure proceedings, and you will not be able to catch up on payments through the controlled process that a Chapter 13 bankruptcy permits.
If you do not want to keep your home, you can give it up and discharge your mortgage debt. To protect yourself, we recommend that you keep the home insured until it is foreclosed.
Q. What happens to my vehicle if I file bankruptcy?
If the following overview makes you dizzy, it’s okay. We will help you understand your options.
If you don’t owe money to a vehicle lender, you can keep the vehicle. If you cannot exempt all of the vehicle’s value, you will have to pay the non-exempt amount to your creditors. If, for other reasons, you had to pay money to your creditors in bankruptcy, you could sell the vehicle or give it up to raise money.
If you owe money to a vehicle lender, and are current on your payments, then in a Chapter 7 bankruptcy you have to choose between the following options:
- Reaffirmation. Attempt to reaffirm the vehicle debt. This requires the approval of the vehicle lender and a judge. Most vehicle lenders will agree to you reaffirming the debt. If a judge allows you to reaffirm the debt, then the debt survives your bankruptcy and is not discharged. If a judge does not allow you to reaffirm the debt, you will discharge only your personal liability to pay back the debt, and there is a risk that the lender will repossess the vehicle, but most lenders will not repossess the vehicle if you continue to make timely payments and reasonably maintain the vehicle.
- Redemption. If you owe more money than the vehicle is worth, you can pay the vehicle lender the vehicle’s current value and discharge the vehicle debt. Because most people do not have the funds to pay the value of their vehicle, this option is not used frequently. However, we can discuss the option of obtaining a special loan (a “redemption loan”) to pay the vehicle lender the vehicle’s current value, and then proceed to discharge the debt owed to the vehicle lender. The court will need to approve of you obtaining the redemption loan, and this new debt will survive your bankruptcy.
- Surrender. You can give up the vehicle and discharge your debt to the lender. Since most people need a vehicle, this means you have a difficult decision to make. You can always buy another vehicle before or after filing bankruptcy. But if you have to finance the purchase, it may be hard to find a lender. Finding a lender before filing bankruptcy may be hard because you’ll have the debt from the vehicle you want to surrender in bankruptcy, and you may have bad credit. Finding a lender after filing bankruptcy will be hard because bankruptcy often lowers your credit score. The finance terms for the replacement vehicle may be no better than the vehicle you want to surrender. Regardless of your situation, we can recommend to you a car dealer who we know understands the bankruptcy process.
If you owe money to a vehicle lender, and you are BEHIND on your payments, then in a Chapter 7 bankruptcy you will probably lose the vehicle unless you can use exempt assets to quickly become current. Note that the filing of your bankruptcy case may need to be carefully timed to when you become current with your payments, and this should be discussed with us during your free consultation appointment.
If you owe money to a vehicle lender, and regardless of whether you are current on your payments, then a Chapter 13 bankruptcy gives you more flexible options than a Chapter 7 bankruptcy:
- Just like in a Chapter 7 bankruptcy, you can give up the vehicle to the lender and discharge your debt to the lender. To finance the purchase of a new vehicle, you will need the bankruptcy trustee’s permission. The bankruptcy trustee will likely approve of the financing if you show a need for the vehicle (i.e., you need a vehicle to drive to work), the monthly payment is affordable given your income and is less than $400, and the overall price is less than $14,000. If the monthly payment is more than $400 and the overall price above $14,000, the bankruptcy trustee may object, although we can still seek a judge’s approval.
- If you are not current on your payments when you file bankruptcy, then you will need to catch up on those payments over a three-to-five year period while your bankruptcy case is active.
- If you are current on your payments, you can continue to make payments to the vehicle lender during your bankruptcy case. If you owe more than the vehicle is worth, then you may be able to pay the vehicle lender the current value of the vehicle and treat the rest of the debt as “unsecured” debt (i.e., like credit card and medical debt; remember, unsecured creditors usually get paid very little in bankruptcy). The analysis depends on how long you have had the vehicle and if any of the debt is leftover from a trade-in vehicle. If you bring us your vehicle purchase agreement to your free consultation appointment, we can properly advise you on your options.
Q. I own a business. What happens to my business if I file bankruptcy?
Owning a business presents difficulties when preparing for a bankruptcy filing. We will want to discuss your specific situation in depth at your free consultation appointment.
Small and medium-sized business owners typically own the business assets and are personally responsible for the business debt. This often means that even if you don’t feel wealthy, on paper you may be ineligible to file the cheaper and faster form of bankruptcy (Chapter 7) unless you want to wind down the business before filing. Another frequent situation is that you will have nonexempt assets and the Chapter 7 bankruptcy trustee will decide to sell them, thereby preventing you from operating your business.
Pre-bankruptcy transfers of money or property to and from the business that appear to be outside the ordinary course of the business affairs will be scrutinized by the bankruptcy trustee, and will need an explanation. Remember, unless you are a sole proprietor, then the law treats you and your business separately.
The business may also owe some of the debts that you will be discharging in bankruptcy, and we will want to discuss how you can protect your business from being sued while you are in bankruptcy. The business may also rely on credit cards to function, however, since your ability to borrow will be restricted in bankruptcy, so will your business’s ability, and we will need to discuss how you can build-up some cash reserves for the business.
Your business is also at risk of being shut down in bankruptcy if it does not have proper or adequate insurance.
If your business is fairly large, or the structure fairly complicated, then we will refer you to an attorney who handles Chapter 11 bankruptcies. Note that Chapter 11 fees are much higher than Chapter 7 or Chapter 13 fees.
The above is just a brief discussion of issues affecting bankruptcies for people who own businesses. The good news is that in a Chapter 13 bankruptcy, everyone – you, the bankruptcy trustee, and your creditors – have an incentive for you to operate your business successfully so you can generate money to make your monthly payment to the Chapter 13 bankruptcy trustee. This overriding principle means that many difficult issues can be overcome.
Q. If I file bankruptcy, should it be a Chapter 7 or a Chapter 13 bankruptcy?
Generally, you want to file a Chapter 7 bankruptcy unless there is a reason to file a Chapter 13 bankruptcy.
A Chapter 7 bankruptcy is cheaper and faster than a Chapter 13 bankruptcy. In a Chapter 7 bankruptcy, and assuming there are no unusual objections to your bankruptcy case, you will receive a discharge of debts three to five months after filing.
Unlike a Chapter 7 bankruptcy, in a Chapter 13 bankruptcy, you will make monthly payments to the bankruptcy trustee for a three-to-five year period before you receive a discharge of debts. The most important factor in a successful Chapter 13 bankruptcy case is having a regular source of income (it is okay if your income is seasonal). Your monthly payment is determined by what the bankruptcy laws calculate as your disposable income, and most people end up paying a small percentage of what they actually owe. While you are making monthly payments, you may need to obtain the bankruptcy trustee’s permission before you refinance debts or take on new debts.
The following are common reasons to file a Chapter 13 bankruptcy:
- You have property that you’d have to give up if you filed a Chapter 7 bankruptcy, and you want to keep that property. Through your monthly payments, you will need to pay the monetary value of that property to your unsecured creditors.
- You earn a high enough income for your household’s size that you are ineligible to file a Chapter 7 bankruptcy.
- You are behind on your mortgage payments and you want to keep the house.
- You have a second or third mortgage but you owe more on first mortgage than what your home is worth. In this situation, the other mortgages are not secured to your home and they can be “stripped” off your home and the debt treated the same as credit card or medical debt.
- You want to stop collection efforts and the accrual of excessive interest and penalties while you repay unpaid taxes, or other debts, that you cannot discharge.
- You want to discharge a debt that cannot be discharged in a Chapter 7 bankruptcy. The most common types of debts that are dischargeable in a Chapter 13 bankruptcy that are not dischargeable in a Chapter 7 bankruptcy are marital debts arising from a divorce (but not child support or spousal support) and traffic fines.
Q. How much does it cost to file bankruptcy?
Chapter 7 Bankruptcy
- Court Fees:
The Chapter 7 filing fee is $335. If you have very limited income, you may qualify to pay the filing fee in installments, or even have it waived. There are usually no other court fees.
- Credit Counseling Fees:
To successfully complete your bankruptcy case, you will need to take two credit counseling courses, one before filing, and one after filing. The fees vary but are typically $25 or less per course, and a married couple can take them together and pay just one fee. They are not “pass/fail” courses, and you can do them online. If you cannot complete the courses online, you can complete them by phone for an additional fee. If you have very limited income, you may qualify for a waiver of the fee, or a reduced fee.
- Credit Report Fee:
We obtain information about your debts from the major credit reporting bureaus. The reports are integrated with our software and provides us better information than the free credit reports, which leads to more accurate and complete disclosures in your bankruptcy case. The fee we pay to run your credit reports is part of the attorney fees we charge.
- Trustee Fees:
The bankruptcy trustee is paid a standard fee that comes out of your filing fee. If you end up having to pay the trustee money (or give up property), the trustee receives a percentage of the amount recovered.
- Attorney Fees:
Attorney fees will vary depending on the complexity of your case. We charge between $1,250 and $1,750, which can be paid in installments. Factors that make a case more complicated are: (a) tax issues (b) property lien issues (c) you own or owned a business (d) the need to run a Chapter 13 analysis to determine which type bankruptcy is more favorable to you (e) you don’t know a lot about your finances and your records are disorganized (f) you need to file very quickly. Contested court matters rarely occur, but if they do, additional attorney fees will be required.
Chapter 13 Bankruptcy
- Court Fees:
The Chapter 13 filing fee is $310. There are usually no other court fees.
- Credit Report Fee:
We obtain information about your debts from the major credit reporting bureaus. The reports are integrated with our software and provides us better information than the free credit reports, which leads to more accurate and complete disclosures in your bankruptcy case. The provider we use charges between $25-$33 for one person, and $50-$66 for a married couple.
- Credit Counseling Fees:
To successfully complete your bankruptcy case, you will need to take two credit counseling courses, one before filing, and one after filing. The fees vary but are typically $25 or less per course, and a married couple can take them together and pay just one fee. They are not “pass/fail” courses, and you can do them online. If you cannot complete the courses online, you can complete them by phone for an additional fee.
- Trustee Fees:
The bankruptcy trustee is paid a percentage of your monthly payment, around 8%.
- Attorney Fees:
Chapter 13 bankruptcy cases are more complicated for many reasons. Compared to Chapter 7 cases, Chapter 13 cases require additional time in order to develop a Chapter 13 plan that the bankruptcy court will approve, and because of the proof of claims process creditors must go through in order to obtain money from the trustee. Also, because people who file Chapter 13 cases often have assets whose values are not fully protected by the Bankruptcy Code, creditors know they are going to get something, so they are more aggressive. We typically charge attorney fees between $2,950 and $3,450 up through the court’s approval of the Chapter 13 plan. Our attorney fees are subject to the approval of the court. The vast majority of the fees are paid through your monthly payment to the bankruptcy trustee. Depending on your circumstances and if you will be paying money to your unsecured creditors in bankruptcy, the payment of attorney fees often means that the unsecured creditors simply get less money. Contested court matters rarely occur, but if they do, additional attorney fees will be required.
Q. I am a creditor and I received notice of a bankruptcy. What should I do?
When you are a creditor and you receive notice of a bankruptcy, there are generally three options:
- Do nothing.
- File a Proof of Claim.
- Litigate whether the debt owed to you can be discharged. If litigation is your option, you may need to prove that the debtor fraudulently or maliciously incurred the debt, although there are other standards and it can be very complicated.
We offer consultation appointments with creditors for a flat fee of $125. We can download copies of what the debtor filed while we discuss your options. However, we do not represent institutional creditors or creditors who frequently get bankruptcy notices.