“For me, it seemed like bankruptcy was the best option. My credit was already destroyed. I was way over my head in unsecured, dischargable debt. It was the best way for me to get a fresh start and start improving my credit. It was not easy and I didn’t make this decision lightly. Because I know it has consequences. Like it will be on my credit report for 10 years.”

Jim, Cleveland


Should I file for bankruptcy?
Deciding whether you need to file for bankruptcy is a personal choice. In the short term, bankruptcy prevents continued efforts by creditors to collect debts. In the long term, bankruptcy can completely eliminate some repayment obligations so you can get a fresh start. Although you may want to try other options first, you should not wait until the last minute to think about bankruptcy, because some important bankruptcy rights may be lost if you wait too long. 

You should start by determining your assets and debts. Look at how long it will take you to pay off your debt and how much will it cost you in total. Consider all of your options, including the protections and consequences of bankruptcy. The decision is ultimately yours and you want to make a fully informed decision. Most bankruptcy cases are complicated, so you should seriously consider getting professional help. Talking to an attorney is the recommended approach to learn about bankruptcy. Talking to an attorney does not obligate you to file for bankruptcy, and many attorneys will provide a free consultation to help you decide whether bankruptcy is the right choice. 

I have always worked hard, and I am a little embarrassed to file for bankruptcy. Does filing mean I am giving up and taking the easy way out?
Most of us want to pay back what we owe, but sometimes that is not possible. Filing bankruptcy does not mean that you are not an honest, hard-working person. Life happens. Our bankruptcy system was created to give people a fresh start, a second chance. The Founding Fathers inserted a bankruptcy provision into the Constitution to provide an alternative to a lifetime of debt. Even though your bankruptcy will be part of a public record, bankruptcies are not generally announced publicly, and, unless you live in a very small town, it is unlikely that anyone else will know that you filed for bankruptcy unless you choose to tell them. 

 Carefully consider your decision, but do not avoid bankruptcy protection if you really need it. Talking to a lawyer for legal advice is always recommended. Also, you can get bankruptcy relief no more than once every 8 years, so choose wisely.

I am constantly being harassed by phone calls and collection agencies. How would filing for bankruptcy help me?
Bankruptcy temporarily stops almost all creditors from taking any steps against you except through the bankruptcy process. As soon as you file the necessary paperwork, you are protected from harassing phone calls, foreclosures, repossessions, utility shut-offs, lawsuits, and other creditor actions. It stops any money being taken from your wages (except for child support and alimony). It even stops the IRS and student loans (at least temporarily). It can give you a breathing spell to assess your finances and determine how to keep from getting into trouble in the future.

However, bankruptcy is not something that should be used as a temporary solution. You should know that once you file for bankruptcy, you cannot easily “unfile.” Make sure you look at your entire situation before deciding to file. Again, it is recommended that you speak with an attorney in order to make the best decision for you.

Which of my debts will be erased if I file for bankruptcy? Which debts will not be erased?
The main goal of most bankruptcies is to erase (or “discharge”) some of your debt. This means that your obligation to repay these debts is eliminated, giving you a fresh financial start. It is important to know which debts are erased (also called “dischargeable”) in bankruptcy. These include most consumer debts such as credit cards, medical bills, payday loans, back-payments on rent, utilities, cell phone, cable television, etc.

It is equally as important to know which debts will NOT get erased (also called “non-dischargeable”) or have a very high standard to get erased. These include most taxes, child support, alimony, student loans, recent income tax debts, and debts you forget to list in your bankruptcy papers.

Will I lose my property if I file for bankruptcy? 
In most cases, you will not lose your personal property (household goods, clothing, etc.) by filing for bankruptcy. Most of your property is likely to be protected from sale in the bankruptcy process by bankruptcy “exemptions.” (However, if you have certain types of property that is (1) very valuable, or (2) subject to a lien you can’t pay, you may not be able to keep it). You usually keep most of your money (there are sometimes limits, though), and your wages are protected against existing creditors. BUT: bankruptcy does not manufacture more money for you. If you don’t use the opportunity to figure out how to make ends meet, you may find yourself back in bankruptcy again.

How will filing for bankruptcy affect my credit?
Although the effect of a bankruptcy on your credit report is somewhat unpredictable, bankruptcy will usually not make your credit score any worse than it already is. Most people filing for bankruptcy already are behind on their bills and already have problems with their credit score. In some cases, the bankruptcy will make it easier to obtain future credit since new creditors will see that old obligations have been erased and the new creditor will now be first in line for payment, though there is no guarantee of this. You will be able to rebuild your finances and get back on the right track once some of your debts have been wiped out.

The one area where bankruptcy is very likely to make it more difficult for you is in attempting to obtain a mortgage to purchase a home. But even then, many lenders will not hold the bankruptcy against you if you’ve reestablished a good credit reputation for 1-4 years after your debts were wiped out.

How long will the bankruptcy stay on my credit report?
Your bankruptcy will stay on your credit report for 10 years. It will be a matter of public record. You can rebuild your credit faster than 10 years. Beware that there are companies that scour credit reports and target people who have filed bankruptcy for credit cards, auto loans, and credit repair. Watch out. Any loans they make will most likely come with very high interest rates and fees, and the credit repair they claim they will provide may not be able to accomplish what is promised.

What is a Chapter 7 bankruptcy? What are the advantages and disadvantages of this type of filing?
One of the biggest advantages of a chapter 7 bankruptcy is it erases your dischargeable debts quickly so you can get your fresh start within a few weeks. A drawback of a chapter 7 for homeowners is it does not give you time to catch up on your mortgage (which is an advantage of a Chapter 13, discussed below). Again, speaking to an experienced bankruptcy attorney is the best method to receive accurate information on dischargeable debts, exemptions, protections and consequences of bankruptcy.

What is a Chapter 13 bankruptcy? What are the advantages and disadvantages of this type of filing? 
The second major type of bankruptcy is a Chapter 13 bankruptcy. In a Chapter 13 bankruptcy, you get extra time (3-5 years) to pay down your debts, rather than erasing them quickly as in a Chapter 7. A Chapter 13 bankruptcy is often called a “house-saver bankruptcy” because it gives you time to catch up on your mortgage. The advantage is the extra time to pay back your debt and catch up with payments. The drawback of a Chapter 13 filing is that you may not be able to make it all the way through your 3-5 year repayment plan.

Your income and a complicated “means test” will determine what chapter you are able to file. An attorney will provide specific information on this decision.

Can I stop an eviction by filing for bankruptcy?
Yes, in some cases. You must file for bankruptcy before there is a final judgment in your eviction case (if there is already a final judgment, you may still be able to stop the eviction if you meet certain requirements). To stop the eviction, you must give the sheriff a copy of the bankruptcy petition. The eviction might still happen if the court allows it or if the leased property is no longer part of the bankruptcy estate.

Am I liable for debts my spouse made?
Washington is a community property state, which means that debts incurred while you are married may be the responsibility of both you and your spouse (these are called “community” debts). Your name doesn’t have to be on the debt for you to be liable. You don’t even have to be aware of the debt at the time it was incurred to be liable for it. All that is required is that the debt be made for the general benefit of the marital community and that it was made during the marriage (and before any physical separation). Be pro-active when dealing with debt and divorce. Consulting an attorney is the best way to make sure your particular needs are met.

In addition to my current debt and budget information, should I also look at my projected future financial situation when deciding if I should file for bankruptcy?
Yes. In addition to your debt and budget information, you will want to project into the future to help you with your decision. Focus on the following areas:

  • Will you have any upcoming expenses? Most people will want to wait until they are near “rock bottom” before they file. You would not want to file for bankruptcy and then incur a major expense that cannot be included in your bankruptcy. An attorney can further discuss these considerations.
  • What about upcoming income such as a new job, inheritance, legal settlement, etc.?
  • Job prospects?
  • Anticipating major lifestyle change? (retirement, divorce, inheritance, children going to college)
  • Own any investments, real estate or other assets (see list) that you are planning to sell or want to sell in the future?

On to the next section!