When you are being overwhelmed by your debts, you may choose to file bankruptcy. All bankruptcies are filed in the United States Bankruptcy Court. There are several types of bankruptcy, including those for corporations, small businesses, and cities and counties. One type of bankruptcy, called a Chapter 13, allows a debtor to establish a payment plan of between three and five years, and possibly seven years.
A Chapter 7 bankruptcy, often called a straight liquidation bankruptcy, is the most common type of bankruptcy. It gives you the opportunity to discharge, or be relieved of liability for, all or almost all of the debts you owe on the date you file your bankruptcy. You do not have to make any future payments on those debts that are discharged, and your creditors are stopped from attempting to collect those debts. There are some debts that cannot be discharged, such as criminal fines and alimony or child support. Other debts, such as taxes, student loans and debts incurred as a result of fraud by you, may not be dischargeable (depending on the circumstances). Personal income taxes are dischargeable if you have filed a tax return and certain time periods have passed. The rules for discharging taxes are complicated; if you have tax liabilities you should consult with an attorney prior to filing bankruptcy. You may receive a discharge in a Chapter 7 bankruptcy once every eight years.
On the date you file your bankruptcy, all of your property, as well as any income you have earned but not yet received, becomes part of your “bankruptcy estate” and subject to the claims of your creditors. Other property, such as the right to an inheritance or proceeds from a divorce decree or divorce settlement acquired within 180 days after the date you file, may also be included in your bankruptcy. Under certain circumstances, your right to tax refunds for prior years or the current year may also be included in the estate, even though you have not yet received the refunds.
You are entitled to protect, or exempt, certain property. If all of your property and income is protected, you will not lose any of your property in the bankruptcy. Your bankruptcy would then be called a no-asset bankruptcy. Depending on how long you have lived in Oregon you may use either the Oregon exemptions or the exemptions included in the Bankruptcy Code. These are often called the federal exemptions. For instance, under the Oregon exemptions some of the property that is exempt includes your interest in a car up to a value of $3,000, household furnishings up to $3,000, clothes and musical instruments up to $,1,800, the federal earned income tax credit, a certain portion of wages, almost all government benefits, some bank account balances and possibly the equity in your home, depending on the amount. The federal exemptions generally give you much greater exemptions, particularly if you do not have equity in a home.
Before you can file bankruptcy, you must complete a credit counseling course. This course can be completed on the Internet or by telephone. Depending on your financial situation, you may have to pay a small fee. Once you complete the course, you will receive a certificate of completion, which is valid for 180 days. After you complete the course, you or your attorney prepare paperwork including descriptions of what you own, the property that you want to exempt, the names and addresses of your creditors and the amounts you owe, your current income and expenses, a statement concerning your financial affairs and a statement of what you intend to do with the property you used as collateral to secure consumer debts. You must include all of the creditors that you know about, including friends and relatives and those creditors you want to pay. You can find many of your creditors on your credit report. You can get a free copy of your credit report once each 12 months from Equifax, Experian and TransUnion. You can get your credit reports at www.annualcreditreport.com. It is good idea to print and save each report for future use. You do not need to get all three credit reports at the same time.
Again, you must include in your bankruptcy all of your creditors, including debts owed to friends and relatives, debts that are not dischargeable, debts for which you are current, and debts that you do not want to discharge.
All of your information must be prepared on forms that have been approved by the court. You must file the forms with the United States Bankruptcy Court, along with the certificate of completion of the credit counseling course. You must also pay a filing fee, which is $335 at the time of this writing. (Note that the filing fee amount changes periodically.) Under some circumstances, if you cannot afford to pay the fee, as part of your petition you can ask the court for a waiver of the fee. If you are not eligible for a waiver of the fee, you may always pay the filing fee in three installments over 90 days after filing. In that event you would not need to pay any fee at the time you file your bankruptcy.
Your bankruptcy is effective on the date and at the time you file it. Once you file your bankruptcy, the court will notify all of the creditors you have included with your petition that you have filed for bankruptcy, and will set a date, time and place for a hearing that is called either “the section 341(a) hearing” or the “meeting of creditors.” It is usually scheduled about 30 to 35 days after you file your bankruptcy petition. You must attend this hearing and answer questions under oath by the trustee and any creditors who appear. The questions are about your financial affairs, including your property, past earnings, past transactions, and the forms you have filed. Your case may be dismissed if you fail to attend as scheduled. As of this writing, because of COVID-19, hearings are being held by telephone.
No later than seven days before the hearing, you must provide a copy of your most recent federal tax return to the trustee, or a transcript which you can obtain from the Internal Revenue Service. Your case may be dismissed if you do not do this. You must also bring to the hearing a copy of your bank statements covering the date you filed your petition and, if you are employed, a copy of your pay stub covering the same date. The trustee may request that you bring additional documents, including the title to any cars, and a copy of your most recently filed state tax return.
The trustee is appointed by the court and is the representative of your bankruptcy estate. It is the duty of the trustee to determine whether you have properly completed all of the forms and listed all of your assets and your creditors, and whether there is some reason why he or she should ask the bankruptcy judge to deny your discharge. It is also the trustee’s duty to take possession and sell any of your non-exempt property, to examine any claims creditors may file and determine whether they are proper, and to distribute any proceeds of your non-exempt property among your creditors. You might be required to make further court appearances. Also, if anyone objects for any reason to your being discharged from all of your debts, or if any creditor objects to your being discharged from any particular debt, you may have to appear in court to defend your position. In the great majority of cases, these issues do not come up.
After you file your bankruptcy, but no later than 45 days after the date of your meeting of creditors, you must complete a second counseling course to be eligible for a discharge. This course is on personal financial management. It can be completed on the Internet or by telephone. Depending on your financial situation, you may have to pay a fee. If you do not timely complete this course and file the certificate of completion with the court, the court can close your case without discharging your debts.
If all of your assets are exempt, and no one objects to your discharge, you will receive your discharge from the debts about 60 days after the meeting of creditors.
During the entire bankruptcy process you must be honest and as accurate as possible in the information you put in your petition and with your answers to questions.
You may wonder whether you need an attorney in order to file bankruptcy. The law does not require you to have an attorney. However, completing all the required documents can be difficult. Also, the filing of a bankruptcy petition is only part of a program to regain financial health. If your petition is filed at the wrong time, you may find that the debts you hoped to have discharged are not discharged — and you will not be permitted to obtain a discharge again for eight years.
Some of your property, which can be made exempt from being taken by the bankruptcy trustee, will only be exempt if you take certain steps to arrange your affairs before you file bankruptcy. Only an attorney should give you legal advice concerning your exemptions. You must request exemptions. Appropriate planning before your petition is filed can potentially save you hundreds or thousands of dollars in the long run. There may be other problems with respect to the discharge of certain debts. These debts should be discussed with an attorney before bankruptcy is filed because it may be unwise to file bankruptcy immediately, or it may be advisable to take other steps to resolve that particular indebtedness.
If you have pledged property to a creditor to secure a debt, then generally you must either agree to continue to pay for the property or give it back to the creditor. This is true even if the property is exempt. You may have to attend another hearing before a judge if you have worked out a deal with a secured creditor to keep some property, unless your attorney files the proper declaration as to each debt you want to continue to pay.
You can obtain more information about bankruptcy, including forms, by going to the Bankruptcy Court’s website at www.orb.uscourts.gov. You can also get a packet of information by calling the Portland office of the Bankruptcy Court at (503) 326-1500. As of this writing the Eugene office of the Court is temporarily closed.
Legal editor: Richard Slottee, June 2020