Frequently Asked Questions

Chapter 13

Chapter 13 is a type of bankruptcy proceeding available to individuals and sole proprietorship businesses to reorganize and eliminate debts. The process includes the filing of a plan which pays all or a percentage of your debts, usually over a three to five year period, based on what you can afford, not what your creditors believe you can pay. Chapter 13 can release you from certain debts that cannot be eliminated in a Chapter 7 bankruptcy.

Yes. A bankruptcy filing creates an “automatic stay” which tells your creditors they can no longer garnish wages or bank accounts, or collect from you or your property in any manner without further order of the Court.

No! Retirement funds are just for that, your retirement. Most retirement accounts are protected from garnishment in and outside of bankruptcy. Please talk with our attorneys before withdrawing any retirement funds to pay creditors.

Yes. Bankruptcy laws allow debtors to “strip away” unsecured second mortgage loans, as long as there is no equity in the property for the loan to attach to. This is only available in Chapter 13 bankruptcy.

In Chapter 13 bankruptcy, underwater (negative equity) auto loans that are older than 910 days are eligible for restructuring. If your auto loan is recent, interest rates may be reduced if they are too high compared to the current market interest rate.

Bankruptcy can be utilized to stop foreclosure by filing a case prior to the foreclosure sale. A Chapter 13 plan allows three to five years to catch-up the back payments while you maintain the regular ongoing payment. Even if you cannot afford the regular payments, if you have equity in the property, your Chapter 13 plan can give you time to sell the property and recover your equity.

No. Chapter 13 bankruptcy allows you to retain equity in property and pay your creditors the liquidated value of your property over a three to five year period of time. Liquidated value is calculated based upon the market value of your property, less any loans, less any exemptions. Chapter 13 is designed to help you keep your property, while paying a monthly payment to your creditors.

Yes. Chapter 13 allows penalties to be treated like credit card debt. A repayment plan can be established which allows you to make payments over time on the past due tax and interest on that tax. Once the plan is completed, penalties are removed from your tax account.

Chapter 7

Maybe. The good news is that in bankruptcy, we have exemption laws. Exemption laws help you protect and retain your property. Exemptions are available for homes, cars, pensions, retirement accounts, and much more. Most Chapter 7 cases are “no-asset” cases because most debtors are able to use the exemption laws to fully protect their money and property.

Yes! If you are current on your auto loan and want to keep your car, you can reaffirm the obligation in Chapter 7 and still eliminate credit card, medical and other debt. Reaffirmation is the process of agreeing to “restate” the loan despite your bankruptcy filing for the right to keep the collateral.

In Chapter 7, if you are not current on your auto loan, the creditor can request “relief from stay” to repossess the collateral unless you bring the loan current. Alternatively, you can file a Chapter 13 to bring current payments, modify the loan or interest rates. Another process, “Redemption” can also be exercised to retain the car and pay market value for car, but requires a new loan.

Yes. A bankruptcy filing stops all garnishments, repossessions, foreclosures, lawsuits and other collection actions. If a creditor fails to stop a garnishment after a bankruptcy is filed, they can be held in contempt for violating the court’s order and will be liable for damages they caused you. Money taken from your wages or bank accounts after a bankruptcy is filed might also be recovered.

Chapter 7 bankruptcy will stop a foreclosure, but only temporarily. Lenders can request “relief from stay” which if granted, allows them to continue with the foreclosure outside of bankruptcy. A Chapter 7 may buy just enough time to relocate, propose a short sale, or enter into a loan modification to resolve past due mortgage payments.

Yes. Everyone who files for bankruptcy has to attend a brief, informal meeting held in a hearing room, not a courtroom. Our Portland bankruptcy attorneys will attend the meeting with you. The meetings are run by the bankruptcy trustee and there is no judge present.

Possibly. If the returns were filed timely and are three years old or older, they may be dischargeable. This is a complicated area requiring review of tax transcripts by a skilled bankruptcy attorney, knowledgeable about bankruptcy laws.

Maybe. Most credit card agreements contain small print which gives card issuers the right to cancel credit accounts when a customer files for bankruptcy. This rule applies even if you owe them no money at the time of filing. It is up to the lender’s discretion. You don’t have to be without a card though – applications for secured credit cards are available following a bankruptcy.

No. Married parties may file individually. However, joint debt may be one good reason to file together. If one party files and eliminates their responsibility for the joint obligation, in non-community property states the creditor can still collect from the non-filing spouse. It is also less expensive to file bankruptcy together (one attorney fee, one filing fee).

If you have an auto loan, the lender will often have a security interest in the automobile.  The security interest protects the creditor if you cannot repay on the loan, giving them the right to repossess.  Bankruptcy does not make these security interests go away.  In a bankruptcy filing, if you wish to keep the car, you may enter into a reaffirmation agreement. The agreement obligates you to continue making payments despite the bankruptcy filing. These agreements are strictly voluntary. Before choosing to reaffirm, the loan should be discussed with an attorney to determine if it is in your best interests to enter into the agreement.

Bankruptcy and Tax

Maybe. Certain taxes such as trust fund taxes are never eliminated in bankruptcy.

Personal Income taxes are generally dischargeable if the tax return was due more than 3 years ago, it was filed more than 2 years ago, the tax was assessed more than 240 days ago and there was no fraud or evasion with regard to the tax liability.

The tax rules in bankruptcy are most favorable to those who have filed their returns and have had taxes assessed. We encourage all of our clients to file their returns. We can show you how to obtain the information to file, and discuss with you how to eliminate penalties and pay the tax if you can’t reach an acceptable payment arrangement with the IRS.

Yes. The IRS can attach a federal tax lien against your property when you neglect or fail to pay a tax debt. You will receive notice of a lien prior to attachment.. If you don’t pay or make arrangements to settle your tax debt, the IRS can levy, seize and sell any type of real or personal property that you own or have an interest in, including some business assets.

Yes. Once a bankruptcy is filed, notice is provided to the IRS and they immediately discontinue garnishment. Continued garnishment is a violation of 11 USC 362, the automatic stay provision of the bankruptcy code.

Yes. The automatic stay prohibits tax agencies from continuing the collection of taxes. This means they must release tax levies, distraint warrants, and stop the seizure of any of your assets. If you have equity in assets and the IRS has filed a lien, Chapter 13 bankruptcy can be utilized to satisfy the IRS lien through structured payments or take the time you need to sell the property at a fair price.

There are a number of non-bankruptcy options for solving tax problems. These include setting up a payment plan with the IRS or completing an offer in compromise (“OIC”). An OIC is an offer to the IRS to settle out your tax debt. An OIC may be a great option if you only have tax debt or are concerned about credit. Bankruptcy is a better option if you have a number of tax years that can be eliminated or if the IRS has rejected a proposed offer in compromise.

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