A Chapter 7 Bankruptcy is what most people think of when they think of bankruptcy. There are a lot of misconceptions about what bankruptcy is all about. Many think that in bankruptcy that you will lose all of your cars, your home, and your things. Other people think that people can’t file bankruptcy against their credit cards and they have even been told this by collection agencies. Nothing could be farther from the truth.
Most people are able to keep ALL of their things including their home and vehicles when they file for Chapter 7. There are limits, but those limits (also called exemptions) are fairly generous for the majority of individuals.
The Bankruptcy Code, this is Title 11 of the United States Code, is a federal law that lays out the rules that the creditors and the courts have to follow when someone files bankruptcy. Among these rules are the rules on how much stuff and what kinds of stuff, as well as the dollar amounts for that stuff that you can keep in bankruptcy. In many states the Bankruptcy Code’s limits are over-ruled by that state’s laws with regard to how much stuff you can keep. Not in the state of Washington however. In the state of Washington you can either use the Federal Bankruptcy Exemptions or you can use the Washington State exemptions (but not both).
This is a huge advantage for Washingtonians and provides us with greater flexibility. There are advantages and disadvantages for both sets of exemptions. For example, under Washington State exemptions you can only have up to $500 in cash or money in the bank. But under the Federal Bankruptcy Exemptions, you can have nearly $12,000 in cash or money in the bank, per person (so $24,000 for a couple). This would lead a person to think that the Washington State Exemptions are not so good for most people. Hang on though. Under Washington state exemptions you can have and protect a homestead (a piece of property you own and intend to live in) that has a value of up to $125,000! Under the Federal Exemptions you can only protect up to approximately $40,000.
In a Chapter 7 Bankruptcy, your file it and forget it. No payments are needed to be made in most cases and all of your debt (with a few exceptions) is eliminated. Even tax debt can be eliminated.
Generally child support obligations, spousal support obligations, debt awarded in a divorce, and student loans are not discharged in a Chapter 7. But, credit cards, lines of credit, second mortgages, repossessed vehicle loans, medical debt, and old rental debt are all dischargeable in a Chapter 7 Bankruptcy.
This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship. Mark McClure is licensed to give legal advise in the state of Washington only.
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