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The following information regarding bankruptcy is brought to you as a public service by the lawyers of the State of Oregon The material presented is general legal information intended to alert you to possible legal problems and solutions.
If you cannot pay your debts, are receiving telephone calls from collectors demanding payment or dealing with a law suit, bankruptcy may help you. One of the major aims of bankruptcy law is to assist a financially distressed person by giving the person an opportunity to make a new financial start. Filing bankruptcy generally results in the discharge, or release from obligation, of your debts or at least of many of them, so that no further legal action can ever be taken against you on those debts. In short, bankruptcy gives you a fresh start. However, careful consideration should be given before filing for bankruptcy, because doing so may affect your credit and have other adverse consequences.
There are several types of bankruptcy. However, for the average consumer, the two most common are called Chapter 7 and Chapter 13. The fee to file a Chapter 7 case is $299. The fee to file a Chapter 13 case is $274. The filing fees often change. You should check with the bankruptcy court for the current fee. Depending on your financial situation, you may be entitled to have the filing fee waived by the court. In a Chapter 7 case you may also file an application to pay the filing fee in installments. You can pay the filing fee in three installments, with the first installment due 28 days after the bankruptcy is filed, the second installment is due 28 days later, and the final installment is due 28 days after the second installment. You can request that the court change this payment schedule if you need more time. However, if you fail to pay an installment on time, your case will be dismissed by the court. Of course, if you hire an attorney, you may have to pay the attorney a fee for representation.
Before you can file for bankruptcy, you must complete a credit counseling course. After you file bankruptcy, and before you can receive a final discharge of your debts, you must complete a debtor education course. Both of these courses can be completed on the internet or on the telephone. Depending on your financial situation, you may have to pay a fee.
During the course of the bankruptcy proceeding you will be required to submit a copy of your most recent federal tax return, or a tax transcript. You generally must submit this information even if you have not filed federal taxes for a number of years. You can obtain a copy of your tax transcript from the Internal Revenue Service.
Chapter 7 is the most common type of bankruptcy. It is called a "liquidation bankruptcy," because the debtor is relieved of personal liability for all debts (with certain exceptions). In return, a debtor must give up possession of the debtor's assets (again, with certain exceptions). While a Chapter 7 bankruptcy is a valuable tool for the debtor, a debtor only will be granted a discharge once every eight years. Once a Chapter 7 bankruptcy is filed, it generally takes about 3 months to complete.
Although the bankruptcy takes about 3 months to complete, you can discharge only those debts incurred before the date the bankruptcy is filed. If the debtor does not have any property to distribute to creditors, those debts which are dischargeable are discharged even if they are not listed in the bankruptcy petition. A debtor’s credit report should list many of the creditors of the debtor. You may get a free copy of your credit report once each 12 months at www.annualcreditreport.com. A debtor must list all of the debtor’s creditors that they know about, including debts to friends and relatives.
Some debts are not discharged by a Chapter 7 bankruptcy. The most common of these debts are child support, spousal support, criminal restitution and criminal fines. Other debts may or may not be discharged, depending on the particular circumstances. For instance, debts arising out of giving a false financial statement, fraudulent use of a credit card, or for willful and malicious injury, may not be discharged. Tax liabilities may be discharged depending on whether a tax return has been filed and sufficient time has passed. Educational loans can be discharged in whole or in part only after proving the existence of undue hardship, something which requires a separate proceeding from the bankruptcy case.
Difficult legal questions arise when looking at these kinds of debts. To avoid serious problems, you should discuss these issues with an attorney before filing for bankruptcy. Many people ask, "Will I have to give up all of my property if I file for bankruptcy?" The answer is that you usually will not. The law recognizes that some things are necessary for a person's survival. Certain property - like your working tools, cash surrender value of insurance, household furnishings, musical instruments, the federal earned income tax credit, some checking and savings accounts, retirement accounts, your automobile, and your home - are exempt. Exempt means that you will be allowed to keep the property as long as the value of the property does not exceed certain amounts and you take the proper steps to claim the exemption in bankruptcy. For instance, a debtor may keep an automobile as long as the debtor’s interest in the automobile does not exceed $2,150. Household goods are exempt up to $3,000. Clothes and jewelry are exempt up to $1,800. A single debtor may exempt up to $30,000 of the debtor's home. Two or more debtors who are members of the same household may exempt up to $39,500 of their home.
Only property which you have, and income to which you are entitled, on the date you file bankruptcy is subject to the bankruptcy. Property which is acquired at a later date generally cannot be taken, regardless of the value. If, however, your property is subject to a security interest, or if your house is secured by a trust deed or mortgage, such property will not be exempt from the creditor holding the security agreement or trust deed or mortgage. If you want to keep the property, you will have to continue to make payments to prevent the creditor from repossessing your automobile or foreclosing on the house despite the exemption from general creditors and from the bankruptcy trustee. For instance, if you are purchasing an automobile, you most likely will have to sign a formal agreement, called a reaffirmation agreement, whereby you agree to continue making payments to keep the automobile. This agreement has to be approved by either the court or your attorney as in your best interests. If the agreement is approved, you will not lose the property but you will have to keep making the payments. And, the debt will not be discharged in the bankruptcy.
We have been discussing Chapter 7 bankruptcy. If you want to know more about a Chapter 7 bankruptcy, as well as the procedure for filing for Chapter 7 bankruptcy, read How Do I File For Bankruptcy? after you have finished reading this topic.
Chapter 7 bankruptcy does not make sense for everyone. Other types of bankruptcies are available. You may file a Chapter 13 petition if you have debts within a certain range and have a regular income, whether from wages, unemployment, or otherwise and you wish to pay some or all of your debts when you can. But you may not file a Chapter 13 if you are a corporation or partnership. Chapter 13 will permit you to propose to the bankruptcy court a plan for paying off your debts gradually, generally within three to five years. Chapter 13 allows you to discharge more types of debts than you can discharge in Chapter 7, but the judge must approve the plan you propose. You will have to agree to give a portion of your income to a trustee who will distribute that money among your creditors on a pro-rata basis. You will not be able to pay only when you can, but will have to make the payments each month or specified time period. You generally will not lose any of your property in a Chapter 13 case, and the court will restrain your creditors from garnishing your wages or taking other action against you and your property, and sometimes even against a co-signer. If you want to know more about this procedure, read Chapter 13-Another Type of Bankruptcy.
A somewhat similar bankruptcy if you have a large amount of debts or are involved in a partnership or business is a Chapter 11 bankruptcy. Chapter 11 primarily is used to reorganize business entities, such as corporations, but may be used by an individual. As long as you comply with a court approved plan, you will be permitted to remain in business without harassment. There is also a somewhat similar bankruptcy for certain family farmers under Chapter 12.
You can obtain more information about bankruptcy, including forms, by going to the Bankruptcy Court’s website at www.orb.uscourts.com. You can also get a packet of information by calling the Bankruptcy Court at either 503-326-1500 or 541-431-4000.
Consumer Credit Counseling is an alternative to bankruptcy that can help people with money problems. Consumer Credit Counseling Service of Oregon offers counseling services. This non-profit service offers free advice about how to get out of debt and how to use credit wisely. For more information, read Is There an Alternative to Bankruptcy?
Legal Editor: Richard Slottee, Lewis & Clark Legal Clinic, November 2007
This information is from the Oregon State Bar's Tel-law service, a collection of recorded legal information messages prepared by the lawyers of Oregon. In addition to being online, the Tel-law service is accessible by telephone at 503-620-3000 or toll-free in Oregon only, 1-800-452-4776. A touch tone phone allows direct access 24 hours a day, 7 days a week. To receive a free Tel-law brochure listing the subjects available call 503-620-0222, ext. 0.