If debt is overwhelming you, you probably have preconceived notions about bankruptcy – how it means the “potential loss of everything” and how it marks you as a “failure forever.” On the contrary, bankruptcy is a federal statute (a guaranteed right) to resolve your debt issues and obtain a fresh financial start in life.
For sure, there will be an adaptation period as the process unfolds and your debts are discharged, but moving on is not the nightmare many imagine it to be. Once you file, the creditors and bill collectors are ordered to stop contacting you, and then as you work through your bankruptcy, whether it be Chapter 13 or Chapter 7, you can start taking concrete steps and moving forward in life.
If you’re facing financial trouble in or around Portland, Oregon, contact the legal team at Christopher J. Kane, P.C. Attorney Christopher J. Kane once experienced bankruptcy himself, and he thus offers compassionate and practical advice.
Your Bankruptcy Options
First, what bankruptcy option is ideal for you? For individuals and families, there are generally two options, Chapter 13 and Chapter 7.
Chapter 13 bankruptcy is known as “The wage-earner’s plan.” Under this option, you calculate your disposable income after all your living expenses – home, cars, food, children, pets – and you agree to pay that amount for three to five years to satisfy your unsecured obligations such as credit cards, medical debts, loans, and anything that isn’t connected to property that can be repossessed or foreclosed. Even if what you pay doesn’t equal what you owe, these unsecured debts will be forgiven.
Under Chapter 13, so long as you keep your payments up to date on your automobiles and home, you are in no danger of losing those possessions. Those expenses will be factored into calculating your disposable income.
Chapter 7 bankruptcy is known as the liquidation option. This is much quicker than Chapter 13 and will generally lead to a discharge in a few months’ time. There is an income means test to qualify depending on the size of your household. If you make too much money, you would have to use Chapter 13.
However, some properties may be subject to being sold to pay creditors. Oregon law does recognize exemptions allowed under the federal bankruptcy code. For instance, you can shield equity in a residence up to $25,000 or $33,000 for joint owners. Your attorney can help you determine how to shield your assets from exposure to liquidation.
Common Misconceptions About Bankruptcy
Through the years in helping people achieve their fresh financial start in life, we’ve come across quite a number of misconceptions and misunderstandings about the bankruptcy process. Here are some of them to help you get a better perspective on the whole process:
Bankruptcy permanently ruins your credit.
While your bankruptcy filing with appear on your credit report for seven years if it’s a Chapter 13 and 10 years if it’s a Chapter 7, that doesn’t mean you can’t obtain credit right after discharge. You should still be careful and strategic, because credit card companies and auto dealers will often start sending you offers in the mail after the discharge of your debts. You need to read the fine print as interest rates, upfront fees, and other penalties can be high.
However, if done wisely, you can start rebuilding your credit immediately by availing yourself of available credit offers. Just make sure that you make all your payments on time and don’t leave any balance on your credit cards. Sometimes even within months or at most two years, you can even obtain a mortgage and purchase a home.
Bankruptcy discharges all debt.
Bankruptcy is great for unsecured obligations, but mortgages and car loans, though protected initially by your filing, can still lead to foreclosure or repossession if you don’t catch up on your payments or refinance and make all monthly charges on time. Also, you cannot discharge most student loans, alimony or child support payments, and most past-due tax obligations.
You lose all your possessions.
Under Chapter 13, you should be able to keep everything provided that you can pay for your secured obligations and other living expenses and still have money left over to pay to creditors. Even if you are behind on your home loan or car, there’s also the possibility of including the arrears amount in your monthly payment to the bankruptcy trustee. Of course, you have to continue meeting your monthly core obligations for those secured items as well.
Under Chapter 7, there’s a chance you may have to liquify some assets. But the moving trucks won’t just pull up in front of your home and take everything you have. There are exceptions that allow you to keep many of your possessions, sometimes even all of them. It really depends on your individual situation. That’s where a bankruptcy attorney can help you maximize your exemptions.
It’s hard to qualify for bankruptcy.
There are income considerations for a bankruptcy filing. You generally can’t, for instance, file for bankruptcy, even Chapter 13, if your income exceeds your obligations and your living expenses are fully met. Chapter 7 does have an income means test based on the size of your household. The bottom line is you’ll know when bankruptcy is necessary when you have to start juggling payments to creditors or skipping some while paying others – or, when the creditors come calling.
Bankruptcy won’t stop creditor harassment.
When you file for bankruptcy, your creditors will be sent notice of what is called an “automatic stay,” meaning they have to cease making collection efforts, which includes ending all calls, emails, and letters. For the secured creditors, however, they can request relief from the stay to being repossession or foreclosure efforts, but while the stay is in effect, you can work with these financial institutions to refinance or extend the loans. You will need to act promptly, however.
Debt consolidation is a better option.
We’ve all seen the TV and online ads for firms offering debt consolidation. What they don’t tell you is that they’re going to extract a hefty fee for their services, perhaps even a monthly surcharge for your payment. They obviously cannot achieve what even a Chapter 13 filing can do in terms of reducing your obligations. They also can’t help you if you’re behind on a secured obligation. Bankruptcy will at least give you breathing room to refinance your car or home loan.
If you are married, you both have to file.
This completely depends on in whose name the debts are held. If only one spouse runs up huge unsecured obligations and the home is up to date on payments, then that one spouse should be able to file on his or her own and discharge those debts. However, if the debt in question is in both spouses’ names, then a joint filing would be the best option. Otherwise, if only one spouse files, the creditors could come after the other spouse even after the filing spouse is discharged.
Get Help From an Experienced Bankruptcy Attorney
As you can see, people’s circumstances really determine which route to take in bankruptcy – Chapter 13 or Chapter 7? Individual or joint filing? An experienced bankruptcy attorney can go over your finances and debts with you and guide you to the proper course of action, and then help you through the system until you obtain a fresh start in life.
If you’re in or near the Portland area, reach out to Christopher J. Kane, P.C. for compassionate and down-to-earth advice and guidance. You can count on them to aim for your best possible solution.
Christopher J. Kanes, P.C. proudly serves clients throughout Oregon, including not only Portland, but also throughout the counties of Clackamas, Columbia, Washington, and Yamhill.