LT Adrianne Mittelstaedt, JAGC USN
If you’re considering bankruptcy because of financial hardship, do your homework first and seek legal advice. Bankruptcy is a legal procedure that can offer a fresh start for people who can’t satisfy their debts. Individuals who follow the bankruptcy rules receive a discharge—a court order that says they do not have to repay certain debts.
There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. The current filing fees for seeking bankruptcy relief under Chapter 7 in Washington are $299 and $274 for Chapter 13. Attorney fees are additional and can vary widely. The consequences of bankruptcy are significant and require careful consideration.
Chapter 13 allows you, if you have a regular income and limited debt, to keep property, such as a mortgaged house or car that you otherwise might lose. In Chapter 13, the court approves a repayment plan that allows you to pay off a default during a period of three to five years, rather than surrender any property.
Chapter 7, known as straight bankruptcy, involves liquidating all assets that are not exempt. Exempt property may include cars, work-related tools and basic household furnishings. Some property may be sold by a court-appointed official—a trustee—or turned over to creditors. You can receive a discharge of your debts under Chapter 7 only once every six years.
Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities. Both also provide exemptions that allow you to keep certain assets, although exemption amounts vary. Personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. Also, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or lien on it.
Much of the bankruptcy process itself is administrative and is conducted away from the courthouse. In cases under chapters 7 or 13, this administrative process is carried out by a trustee who is appointed to oversee the case. A debtor’s involvement with the bankruptcy judge is usually very limited.
A chapter 13 debtor may only have to appear before the bankruptcy judge at a plan confirmation hearing. Usually, the only formal proceeding at which a debtor must appear is the meeting of creditors, which is usually held at the offices of the U.S. trustee.
Personal bankruptcy generally is considered the debt management tool of last resort because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, making it difficult to acquire credit, buy a home, get life insurance, or sometimes get a job. Military members need to be especially conscious of how a bankruptcy can affect their security clearances.
Please contact your nearest NLSO NW office for more information or to schedule an appointment with a legal assistance attorney.