The past year has been tough for everyone, and business closings, layoffs and medical expenses have compromised the life savings of many Americans. Even though the forbearance period on evictions and foreclosures is now extended through June and struggling homeowners will be offered loan mitigation options once it ends, for some it will be too little, too late.
Although bankruptcy is not always the necessary next step for Silverdale and Western Washington residents, it can be a comfort to know that at least it can be one of several options available for those who are trying to get back on their feet.
The laws that govern bankruptcy proceedings are covered under the federal bankruptcy code (11 U.S.C. Section 101), with each district court following state rules and procedures concerning bankruptcy exemptions. For those who have decided to file for personal bankruptcy, there are two options, Chapter 7 or Chapter 13.
Chapter 7, called liquidation or straight bankruptcy, allows debt relief to an individual with the inventory and sale of any nonexempt real or personal property as determined by state law. Chapter 7 is primarily for those who are seeking a discharge from debt that may have accumulated due to their own or a family member’s medical expenses, a job loss or overextended credit.
Debt that is discharged in a Chapter filing includes most unsecured debt, such as credit card balances, personal loans and most if not all medical debt. Although non-exempt property will be liquidated, the debtor can hold onto secured debt such as a car loan or home mortgage after signing a reaffirmation agreement. Some debt, such as college loans, child support or alimony, or tax debt, cannot be discharged.
To qualify for Chapter 7 in Washington, the filer must pass a means test that affirms that their monthly household income falls below the state’s median income, factoring in household size and income over the most recent six months.
A Chapter 13 bankruptcy filing is a reorganization proceeding in which the debtor will retain most property while restructuring a repayment model with creditors in which they will pay off all or part of certain debt within a time frame of three to five years. In this proceeding, a court-appointed trustee oversees the repayment of debt to creditors.
Even if you do not qualify for Chapter 7, a Chapter 13 bankruptcy not only stops creditor harassment and removes the threat of wage garnishment, but it will also allow you to reorganize debt so that it is manageable while discharging the portion of debt that you are unable to repay based on your income.