What you should expect if you file a Bankruptcy
The sole purpose of filing for bankruptcy is to obtain a discharge of your debts so that you will not have to pay your creditors. However, the following debts are not discharged by filing bankruptcy, and you will have to pay the creditors to whom these debts are owed:
- All federal and state taxes, including income taxes, employee taxes, and business and occupation taxes. 2. Any money, property, services, or any extension, renewal, or financing of credit that was obtained by fraud, by false pretenses, or by false representation, or that were obtained as the result of a materially false financial statement (for example, if you borrowed money from a local loan company and told them you owed only $2,000 to other creditors when in fact you owed $6,000, that might be a materially false representation). 3. Any debt that is not listed in your Petition for Bankruptcy. 4. Any debt that was incurred as a result of fraud or defalcation while acting in a fiduciary capacity (such as a bank teller) or embezzlement or larceny. 5. Any alimony, maintenance, or support of a former spouse and any child support. 6. Any debts resulting from a willful and malicious injury that you committed (for example, if you mortgaged your household goods to a local loan company and then sold those mortgaged goods without the consent of the local loan company that may constitute a willful and malicious injury). 7. Any debts resulting from a fine, penalty, or forfeiture to any governmental unit. 8. Any debts incurred as a result of an educational loan. Since the sole purpose of bankruptcy is to obtain a discharge, you should carefully ask yourself whether any of your debts could fall within the foregoing categories. If you think that they might, you should be sure to discuss those with me.
In addition to these debts that are not discharged, you may consider it economically necessary for you to pay certain other debts. These debts may consist of the following: 1. Debts that are secured by a mortgage or security interest in your real or personal property. (For example, if you do not pay the mortgage on your home, the bank can repossess your home even if you file bankruptcy. This is also true for a mortgage on your car and some of your other personal property.) 2. If your business requires goods from a single supplier, that supplier may not continue to supply your business needs unless you pay your indebtedness to him. 3. Bad checks. Although bad checks are dischargeable in bankruptcy, the writing of a bad check may constitute a criminal offense. Sometimes creditors holding bad checks threaten bankrupts with criminal prosecution unless they make those checks good. Accordingly, the only way to prevent this criminal action is to pay these debts even though you can legally discharge them. 4. Co-signed debts. Even though you list a co-signed debt on you Petition, your creditor can demand payment from the person who co-signed it. 5. Utility bills. Although a utility bill can be discharged in bankruptcy, the bankruptcy law allows a utility to disconnect service to a person who has fled bankruptcy unless that person posts a deposit. It has been my experience that the amount of the deposit required by utilities in North Central Washington equals or exceeds the bill owed to that utility. Accordingly, if you wish to continue to receive service form a utility, such as the PUD, the telephone company, or the water district, you should be prepared to pay any bill that you might owe to any of these utilities. 6. Lawsuits. If you are being sued, you will want to file bankruptcy before a judgment is entered against you. A judgment can be entered against you in some jurisdictions within twenty (20) days after you have been served with papers. If a judgment is entered against you, that judgment becomes a lien on any land you own or may own in the future. That lien becomes subordinated to any exemption on your home when you file bankruptcy, but the lien remains in existence for ten (10) years after it is entered or more, depending on where you live. (Please note, your homestead exemption in bankruptcy only obtains priority over a judgment lien; the homestead exemption does not cause the judgment lien to disappear.) That lien can interfere with you ability to sell or refinance your home and if you develop substantial equity in your home during this ten (10) year period, such as by paying off your mortgage, the lienholder can, under some circumstances, compel you to either sell your home or pay the lien. Also, if you own land other than your home, the judgment become a lien on that other land as well. The lienholder can seize that land if you are unable to exempt it.
With respect to the bankruptcy procedure itself, a bankruptcy case is started by filing a Petition in the United States Bankruptcy Court. After filing this Petition, your creditors cannot garnish your wages, start or continue any lawsuit, or take any other action to collect on their claims while your bankruptcy case is pending, without approval of the Bankruptcy Court.
In about three (3) weeks to one (1) month it will be necessary for you to attend a hearing in front of the Trustee. This hearing, known as the First Meeting of Creditors, usually lasts about five (5) minutes and the Trustee asks you questions about your petition (for example, he frequently asks if there was any equity in any cars that have been repossessed.)
Approximately two (2) after this hearing, you will obtain a discharge of your debts. During this period of time you need not do anything unless the Bankruptcy Court or your lawyerI tells you to take certain steps. During the period between the initial hearing and the discharge, the trustee will be collecting from you your non-exempt assets and converting those assets to cash to be distributed to your creditors. (Non-exempt assets are your land and personal property that you cannot keep under the Bankruptcy Law).
People frequently ask me what effect bankruptcy has on their credit. I do not know the exact answer to that question. Credit is what other people think of your ability and willingness to pay your debts, and it is not regulated by law. The fact that you filed bankruptcy will be reported on your credit history, and it will remain there for ten (10) years from the date you file your case.
In addition to the above comments, a few other remarks are in order. First, you must tell the absolute truth in preparing your bankruptcy petition. Failure to do so is a federal criminal offense and constitutes grounds for denying you a discharge. Second, you will not be able to save your possessions by "selling" them to your relatives for $1.00. This is a fraudulent conveyance and can be set aside. If you have decided to file bankruptcy you should not pay any debts other than those debts you intend to reaffirm, or which is secured by property you intend to keep, or that are necessary to put a roof over your head, food on the table, and clothes on your back. There are a number of things you should do while deciding to file bankruptcy, and there are a number of steps and things you should do while waiting for your bankruptcy papers to be completed and filed. These things can prevent unnecessary problems. These steps can prevent property from being taken, accounts being garnished and avoid other problems or complications to your case:
- Read your mail. Your mail may contain court notices about hearings, garnishments, attachments and other things of immediate concern. You may also learn that your debts have been sold, transferred or being handled by another creditor. Knowing who these new creditors are is important. 2. Learn to Navigate the Courts' Websites. Many courts out there have websites with easy access for anyone. A person can then watch the websites for court actions that affect them. Checking the courts websites often can prevent bad things from happening. The court websites will contain information about foreclosure sales, garnishment and attachments and lawsuits. 3. Direct Deposits. It is always a good idea to make sure your direct deposit of paychecks, government assistance, child support, etc are not being directly deposited into a bank account in a bank that you owe money. Most credit union loans and some bank loans allow the lender to help themselves to the money in your account. It is a good time to move your direct deposits into a bank you don't owe money to. 4. Automatic payments. See above. If your life insurance or mortgage payment are coming out of a bank or credit union you owe money too this can create problems. The bank may help itself to funds on hand before the automatic withdrawal occurs. You may have automatic payments coming out of your accounts to pay your creditors. You want to stop this as soon as possible. This way you are controlling when you pay someone. This way people don't get people who shouldn't.
The foregoing comments are not meant to cover all possible developments in a bankruptcy case, but are only intended to give you a general overview. If you should have any questions about your bankruptcy case and if the answer is not immediately obvious after reading this you should always ask your lawyer.