Chapter 7 Bankruptcy

FILING  CHAPTER 7 BANKRUPTCY IN PORTLAND, OREGON:

 Potential Benefits:

  • Stop collection letters, calls, lawsuits, garnishment, and other debt collection activities.
  • Permanently discharge most consumer debts such as credit card, medical, and personal loan debts without paying another dime to these creditors.
  • Begin using your resources to pay for necessary living expenses instead of high-interest debt payments.
  • Relieve the extreme stress that often comes with being overwhelmed by debt and from dealing with debt collectors.
  • Get a fresh start and get back on the road to financial stability.

Potential Disadvantages:

  • Many tax debts, student loans, parking tickets, criminal fines, and spousal/child support are not dischargeable.
  • May not be the best option if individual or couple has significant equity in highly valuable assets.
  • May be unavailable if you have already filed for Chapter 7 bankruptcy in previous eight years.

Generally:

A Chapter 7 bankruptcy is often referred to as a “straight bankruptcy” or a “liquidation bankruptcy.” It is by far the most common type of bankruptcy filed by individuals. In Chapter 7, an individual or a couple can permanently discharge qualifying debts, including medical bills, credit card debts,  and most other consumer debts. The vast majority of people get to keep all of their property, including car, clothing, household goods, work tools, furniture, and other personal property, and their home. An individual can only be granted a Chapter 7 discharge once every eight years. After filing for Chapter 7 bankruptcy, it generally takes about three months to get a “discharge” and for the case to be closed.

Property and Exemptions:

Upon filing of the bankruptcy, almost all of the individual’s or couple’s assets technically become part of the bankruptcy estate, and thus subject to liquidation by the trustee to pay creditors/debts. However, as stated above, it is highly likely that most or all of your assets will be classified as “exempt.” Exempt property is property that will not be liquidated or retained – you will get to keep this property as is. Exemption laws are established by each state.

As of July 2013, Oregon adopted a new statute that allows Oregonians to use either the federal exemption scheme or the Oregon exemption scheme. This was a big victory for Oregon consumers, because, for the most part, federal exemptions are more friendly to bankruptcy filers. Exemption laws help ensure that people are able to keep most of their important property and essential belongings, so that the fresh start contemplated by bankruptcy can be effective and lasting.

Knowing what exemptions apply and how to properly and effectively apply them is one of the most crucial aspects of a bankruptcy law practice. These laws frequently change, and failing to understand or misapplying them can lead to unnecessary loss of property for the filer. Most exemptions have limits, in that only the equity in the property below a specified amount is exempt. For example, as of the date of this post, the Oregon exemption limit that applies to a “homestead” (primary residence) is capped at $40,000 for an individual, and $50,000 for a couple. Thus, if the current equity (current value of the home minus the balance owed on the mortgage(s)/liens) of the home is less than $40,000, the trustee will not liquidate the home because there would be nothing left for the creditors after a sale and remittance of the $40,000 exemption amount to the filer. Of course, to keep the home the filer will still have to keep current on the mortgage payments to prevent foreclosure by the bank, despite the exemption that protects the home from other creditors and liquidation in the bankruptcy.

The same thing goes for other secured property, usually a vehicle that you are making payments on. Before or after bankruptcy you must stay current on the payments or the lender will repossess the vehicle. Sometimes, if the car is worth significantly less than what is currently owed on the loan, it is a good idea to “surrender” the car back to the lender during the bankruptcy, and to get out of what has become a bad investment. The bankruptcy discharge will wipe out the lender’s ability to sue you for the deficiency after it sells the vehicle at an auction.

Other types of property, such as household goods, furniture, appliances, clothes, jewelry, work tools, musical instruments, and even cash or money in bank accounts, are exempt if valued below the allowable limit. It is important to remember that the appropriate value for these items is not what the property was worth when purchased but rather what it is worth at the time of filing. Because personal property typically depreciates in value quickly, it is highly likely that all these types of belongings will be protected by the applicable exemptions and thus can be retained.

The federal exemptions now available to Oregonians provide a $1,225 “wildcard” that can be used to exempt any property, or be added to any other exemption, and up to an additional $11,500 of any unused homestead exemption amount. Comparatively, the Oregon exemptions only provide a $400 “wildcard” exemption, and even this $400 exemption cannot be added as a supplement to any other exemptions. Since the federal exemptions became available in Oregon in July 2013, the federal exemptions are almost always selected because of the significantly larger “wildcard.”

 Brief Overview of the Process:

A Chapter 7 bankruptcy begins with the filing of a petition and other associated documents with the court. The court itself charges a Chapter 7 bankruptcy filing fee, which is currently $335. The rules also require a filer to complete two separate educational courses (often called “credit counseling” and “financial management”), one prior to filing and the other not long after filing. These courses can usually be done in person, online, or over the phone, and usually cost about $10 to $30. Other documents, many called “schedules,” must be filed with the court to establish and prove the filer’s assets and liabilities; the source, amount, and frequency of the filer’s income; and monthly living expenses. Of course it is critical that all of the requested information be truthful and accurate. Evidence verifying income and assets will be necessary, including tax returns, pay stubs, and bank statements. A skillful bankruptcy attorney has a set of very detailed yet easy-to-use tools to get this information from their clients in an efficient and effective way.

The filing of the bankruptcy triggers an “automatic stay” that stops virtually all collection actions. During the stay (in effect until discharge or dismissal), creditors must stop or discontinue all lawsuits, garnishments, or even communications asking for payment. The bankruptcy court gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor at the time of filing. A proficient bankruptcy lawyer will swiftly take action against any creditor who violates the protection provided by this automatic stay.

About 30 to 45 days after the petition is filed, the trustee will hold a “341 meeting of creditors.” The filer must attend the meeting and answer questions regarding the bankruptcy forms and the filer’s financial affairs and property. The trustee assigned to the case will ask the filer questions about the bankruptcy forms filed. The trustee is trying to determine if there is any non-exempt property that can be liquidated and to make sure that the filer properly disclosed all of the required information. This meeting is not attended by any judge or clerk of the bankruptcy court. Although creditors can attend this meeting, it is uncommon. Although, understandably, many people are nervous about attending such a meeting, a compassionate and effective bankruptcy lawyer will not only attend the meeting, but will help to reassure the client by carefully preparing them, making sure that all necessary documents are sent to the trustee and the court, and helping the client navigate through the questions if they are unsure how to answer.

The Discharge:

A successful discharge releases debtors from personal liability for most debts and prevents the creditors from taking any collection action after the discharge. Generally, excluding cases that are dismissed or converted, individual debtors receive a discharge in more than 99% of Chapter 7 cases. In most cases, the court will issue a discharge order about 60 to 90 days after the date first set for the “341 meeting of creditors.” (The grounds for denying an individual debtor  discharge in a Chapter 7 case are quite narrow. Among other reasons, the court may deny the debtor a discharge if it finds that the filer did not keep or submit applicable financial records; did not adequately explain any loss or transfer of assets; committed perjury; failed to obey an order of the bankruptcy court; fraudulently transferred, concealed, or destroyed relevant property; or failed to complete both of the required courses.) After being granted discharge, it is time for the individual or couple to move on with their fresh start.

If any of the creditors that were listed in the bankruptcy and owned debts that were discharged attempt to collect on these discharged debts, they are breaking the law, and a zealous lawyer will sue them and recover for the damages caused by their actions. After all, the purpose of filing bankruptcy is to get relief from aggressive collectors, and sometimes they need a big slap by the court to tell them they cannot violate a court order and threaten people’s fresh start.

Although the bankruptcy will be listed as a public record for 10 years, there are many ways to begin rebuilding credit and get on the road to financial stability. In fact, many people actually see a bump in their credit score shortly after filing bankruptcy. A skilled bankruptcy attorney will provide information to the client so that they can begin to take some very important steps toward financial well-being.

If you live in Portland, Gresham, Multnomah County, or in the Portland Metro area, and you think that filing a Chapter 7 bankruptcy in  may be a good option for you, or you just simply have some questions, please contact me at 503-847-4329 for a  free phone consultation.

For more information about filing bankruptcy here in Portland, or other areas in Oregon, I suggest checking out the Oregon Bankruptcy Court’s website.

Any information on this website is provided as a courtesy, for basic informational purposes only. It is not intended to be a comprehensive or accurate statement of the relevant laws.

Affordable & Compassionate Local Portland Bankruptcy and Consumer Protection Lawyer