Get answers to common questions about applying for Bankruptcy.
If you cannot pay your debts and cannot work out monthly payments with your creditors, they will probably sue you in court to get a judgment against you. A judgment is a judge’s decision that something is true; for example, that you do owe the creditor a certain amount of money.
If you do not think you owe the debt, you can usually have a court hearing or trial to determine whether you owe it. If the debt in question is less than $5,000.00, you would normally be sued in Small Claims Court and you can request a hearing.
If you are sued in Small Claims Court for more than $200.00, you can request a jury trial. For debts over $5,000.00, you will probably need a bankruptcy lawyer’s advice on how to proceed in another court.
If you just can’t afford to pay the debt, but you acknowledge that you owe it, then there is no point in asking for a hearing. The purpose of the bankruptcy hearing is only to decide who owes what to whom, not when or how a debt will be paid. That is up to you and the creditor.
Once a creditor has a judgment against you, the creditor can then try to collect it. The judgment will usually be for the amount the creditor asked for in the papers that notified you of the suit, plus court costs and possibly attorney fees.
The creditor can use legal methods to try to collect the judgment against you, such as by garnishing your wages or bank account, or by attaching your property to be sold to pay off the debt.
However, the law protects certain amounts of your wages, income from certain sources, and it protects some of your property (see below). This protected property and income are called your exemptions. If all of your property and income are exempt, you are what is called “judgment-proof.” However, judgments in Oregon are good for ten years, and can be renewed for another ten years, so you may not always be judgment proof. Also, unpaid judgments accrue interest at a rate set by statute (the contract rate or 9% minimum).
Auto Accidents: If a judgment is obtained against you due to an auto accident, and you do not pay the judgment within 60 days (or work out an acceptable payment plan with the creditor), the creditor can have your driver’s license suspended for up to seven years. Sometimes it is possible to have the court approve a payment plan even if the creditor will not, provided you can show that it is an undue hardship on you not to have the license. Bankruptcy proceedings may allow you to regain your license. You will need an attorney’s help if this applies to you.
Under present Oregon law, you always have the right to keep 75 percent of your take-home pay, or at least $170.00 per week of your take-home pay, whichever is more. This is true for almost all court judgments. Two major exceptions are when you owe back child support, and when you owe state or federal taxes.
NOTE: Under Oregon law, you cannot be fired from a job just because your wages are being garnished. However, you may wish to discuss the situation with your employer if you are faced with being garnished, so that your employer will be prepared when he or she is served with the garnishment papers by the sheriff.
Under present law, income from some sources is completely exempt and cannot be garnished at all. Some examples are: Social Security Disability, pension benefits, unemployment benefits, veterans’ benefits, Workers’ Compensation benefits, welfare, and child support. A bankruptcy lawyer can check on your benefit income to determine if it is exempt from garnishment.
What if I put my wages or other income in a bank account?
Under Oregon law, exempt wages and other exempt income are still exempt even when deposited in a bank account up to $7,500.00, as long as you can reasonably prove that the money in the account is from an exempt source. However, you may need to prove your exemption after the monies are garnished because the bank or creditor will not know the source of the monies at the time of the garnishment.
Some of your property is exempt; that is, it is protected by law and no creditor can take it from you to sell to cover a judgment debt. To claim property as exempt you must actually own some or all of it.
Property which you used as collateral to secure a debt, though possibly exempt from sale by any other creditor, is still not exempt from sale by the creditor who has it as collateral. Secured property can sometimes be kept if you go through bankruptcy, but normally you still must pay any creditor who holds it as collateral.
To know if your property is exempt from all creditors except those that have it as security, you must decide how much your equity in it is worth. Equity is the amount that you actually own. If you don’t owe any money on the property, then your equity is the same as the value of the property. But if you owe money on something, your equity is the value of the property minus what you owe on it.
You can figure what the value of the property is by deciding how much you would get for it at a garage sale, or, if it’s a car, by taking it to a used car dealer. Use the present “market” value. For example, if you own a car worth $500.00, and don’t owe any money on it, then your equity is the same as its value, which is $500.00.
The following is a partial list of property which may be claimed as exempt in Oregon under present law and the maximum equity you may claim for each:
- Home in which you live: up to $40,000.00 equity for one debtor, or up to $50,000.00 equity if two debtors live in the same household;
- Household goods, furniture, appliances: up to $3,000.00;
- Vehicle: $3000 for one or up to $6000 for husband and wife;
- Clothing, jewelry, other personal items: up to $1800.00;
- Tools necessary for your trade: up to $3000.00 per debtor engaged in business;
- Books, pictures, musical instruments: up to $600.00;
- Domestic animals and poultry kept for family use: up to $1,000.00;
- One rifle or shotgun, and one pistol: up to $1,000.00 per debtor;
- All child support and spousal support owing to you; and
- Claims you could make for personal injury: up to $10,000.00.
If two debtors are in the same household, they can each claim the exemptions under section c, d, e, f, h, i and j above. They can claim the exemptions on separate property, or they can combine their exemptions on the same property as long as they both own it. For example, a husband and wife may own a single vehicle with equity of $6000 which would be exempt from creditors.
Once you have been sued and your creditor has a judgment against you, the creditor can also require you to come into court and answer questions as to what property you have, whether you are working, whether you have bank accounts and where they are, and anything else that could help the creditor collect on the judgment. You would receive a court order telling you when and where to be in court to answer these questions, and you must be there. The questioning is called a “debtor’s exam.”
If you do not work out arrangements with your creditors on debts that are secured by some of your property, the creditor may have the right to repossess the security. However, creditors may not break into your house or garage to repossess the property, and you are not required by law to let creditors into your home to repossess property unless they have a court order to do so.
Once a creditor repossesses property, you should be given notice that it is going to be sold, and a sale will be held. Bids at such sales are usually low, and the property often brings less than it is really worth.
The proceeds of the sale are applied to the costs of sale and then to the debt. If there is any money left over, it should be returned to you. If, instead, there is a debt still owing, it is called a “deficiency.” If you owed $1,250.00 or less at the time of default, the creditor cannot come after you for the deficiency. An attorney can advise you more about such a situation.
Bankruptcy in Oregon
Bankruptcy is a legal proceeding in federal court in which a person with debts can be released, or discharged, from the debts, or from most of them. The person with the debts is called a “debtor.” The people or companies you owe money to are called “creditors.” The person appointed by the bankruptcy court to collect your non-exempt assets and sell them, if necessary, is called a “bankruptcy trustee.” The trustee is paid a commission from the money he sends to the creditors.
When a debtor files for bankruptcy, the debtor is allowed to keep certain property, because it is protected by law. This property is called “exempt property.” See “What other property is exempt?” above for a partial list of exempt property. Other property may be sold by the bankruptcy trustee.
The money received from the sale is divided among the creditors, depending on how much you owe to each creditor. Sometimes an item of property is partially exempt. In that case, it is sold, and the debtor gets back some money for the exempt part, and the rest of the money is put into the pool to be divided among the creditors.
Bankruptcy court is a federal court available to you if you cannot pay your debts as they become due. There you can either attempt to force your creditors to accept some type of payment or be released, or “discharged,” from any payment of some or all debts.
The type of case most people think about when they hear the word bankruptcy is a “Chapter 7” or “liquidation” case. We will refer to this as a “straight bankruptcy.” In a Chapter 7 bankruptcy the trustee collects all of your non-exempt assets, converts them into cash and then distributes the cash to your creditors as provided by law. However, most people who file for bankruptcy only own exempt assets and they therefore do not lose any property when they file.
You complete a questionnaire provided by Harder, Wells, Baron and Manning, P.C. Your bankruptcy attorney will then prepare and file a Petition with the United States Bankruptcy Court, and list all your debts and assets (called “schedules”), along with answers to questions about your finances in the last two years (called “Statement of Affairs”). You must sign the Petition after it is drafted and before it is filed with the Court. We will provide a copy to you.
All of the property which would be exempt under state law if a creditor had sued you and obtained a court judgment is exempt in the bankruptcy proceeding. A partial list of this property has already been given above, in the section called “What other property is exempt?” An attorney can help you determine if you have any other property which is exempt, so you can be sure to claim all the exemptions to which you are entitled.
About four to eight weeks after we file your bankruptcy petition, there will be a short administrative hearing called a First Meeting of Creditors. You are required to attend. An attorney from Harder, Wells, Baron and Manning, P.C. will represent you at the hearing. All your creditors are given notice of the meeting, and they may attend also, but they usually do not. The purpose of the meeting is for the trustee, and any creditors who show up, to question you about your assets and debts as listed in your schedules. In addition, your secured creditors will wish to make arrangements for you to “surrender” (i.e. give back) collateral or to make arrangements to pay for it. (See below, “What happens to my secured debts?”).
In a Chapter 7 bankruptcy after the Meeting of Creditors, the creditors normally have 60 days to file any objections to either the dischargeability of only their debts, or the discharge of all your debts. If an objection is filed, you are entitled to a trial.
After the time to object has run out, and if no one objected to the discharge of all debts, you will receive a Discharge from your debts. The only exceptions are those debts which can never be discharged, or individual debts that were objected to and you lost the trial.
The other type of case we may file in bankruptcy court is called a “Chapter 13 .” With a Chapter 13 plan we may force your creditors to take monthly payments, usually over a five-year period, as long as the judge finds you filed in “good faith” and have enough money to make your plan payments after paying your living expenses. Your payments are made to the trustee who then sends the money to creditors according to the terms of the plan.
Under a Chapter 13 you normally don’t have to pay your unsecured creditors in full, or any interest, to be discharged from the debts and you may keep non-exempt property. You are usually completely protected by the court from creditors; you may stop foreclosure or repossessions of your property; and monthly payments to secured creditors may be reduced, though you have to pay the current value of any collateral in full.
In a Chapter 13 bankruptcy some things are different. There is still a First Meeting of Creditors. However, shortly after that is a hearing before a judge called a “Confirmation Hearing.” At this hearing the judge studies your financial situation, plan and creditor objections, and then decides if it is fair, filed in good faith and you can pay. If so, the plan is confirmed and the creditors are stuck with it. If not, you can file an amended plan, convert to straight bankruptcy or dismiss your case. If the Trustee recommends confirmation of your plan, your attendance is usually not required at the Confirmation Hearing.
If you make all the payments required by the plan, you get your discharge from all debts, except certain long-term ones like house mortgages.
A bankruptcy case will be reported by credit reporting agencies for ten years. Creditors are sometimes willing to approve credit after bankruptcy because they know that a financial burden has been lifted, so you may be able to keep up regular payments. Also they know if you file a bankruptcy and they loan you money, you cannot file another straight bankruptcy for several years. However, some creditors will require a period of time between the bankruptcy and further credit.
Yes, some debts cannot be discharged in a straight bankruptcy and must be paid in full:
- Child support and alimony which you are required to pay by court order;
- Debts you forgot to list in your bankruptcy petition;
- Some state and federal taxes;
- Student loans;
- Damages from a motor vehicle accident when debtor was intoxicated;
- Fines, penalties and restitution;
- Debts resulting from false pretense or fraud, such as a loan obtained with false credit information;
- Debts based on willful, intentional, or malicious wrongdoing by you; and,
- Debts you were ordered to pay in a divorce.
The bankruptcy proceeding stops or “stays” all creditor activity against you, including lawsuits filed in other courts. Any lawsuit would be put on hold until the bankruptcy is decided. If the bankruptcy discharges the debt, the lawsuit will be dismissed.
If you pay some, but not all, of your creditors shortly before filing bankruptcy, this is called a “preference.” You have “preferred” some creditors over others.
Any payments to creditors of more than $600.00 within 90 days before you file bankruptcy may be collected back into the pool of assets by the trustee. Any payments of $600 or more to “insider” creditors, such as family members, friends, or close business associates, will be collected back into the pool of assets if they were made within one year before you file bankruptcy.
That could be considered an act of fraud especially if you received less than reasonable market value for the property. It could result in the property being recovered by the trustee or your discharge being denied.
As stated before, a debt is secured if you gave the creditor a right to repossess the property or goods you used as collateral. Purchase money secured debts are those where the money was borrowed in order to buy the property which became the security for the debt. For example, if you borrow $5,000.00 from a bank to buy a car, and the bank holds title to the car until the debt is paid off, this is a purchase money debt and it is also a secured debt.
On long-term debts, like house mortgages, you just keep up normal payments, but you still must pay after the plan is over since that debt won’t be discharged. You may also give collateral back.
In a Chapter 7 bankruptcy, you usually have to either return collateral (surrender) or pay for it as agreed (reaffirmation). If the collateral is personal property and you want to keep it for family or household use, then you can also pay the seller the present fair market value of the item in one lump sum (redemption).
If you used household goods (furniture, appliances, etc.), that you already owned, as collateral or security to get another loan, you may be able to keep the household goods and to discharge the loan debt without having to pay it off. Your attorney can file a motion within the bankruptcy proceeding to ask for this.
In a Chapter 7 bankruptcy you have three options regarding your home:
If the equity in the home is less than your homestead exemption, you can keep the home, keep on making payments, and try to work out a reaffirmation with the mortgageholders as to any payment arrearage; OR
If your equity in the home is greater than your homestead exemption and you want to keep the home, you can keep on making payments, but you will have to obtain the money to pay the bankruptcy trustee the “excess value” of your equity over and above the homestead exemption or pay that amount to the court in a chapter 13; OR
You can just give up your home to the trustee, claim your homestead exemption; when the home is sold you will receive your exemption amount.
In a Chapter 13, you may keep your home if you catch up any arrearage through the life of the plan and also continue to make your normal monthly payments.
The cost of filing bankruptcy depends on whether we file a Chapter 7 or Chapter 13 bankruptcy on your behalf. In either case, our firm requires a $250 retainer, after which you may refer your creditors to us. In a Chapter 13 proceeding, most of our fees are paid by the bankruptcy trustee from the payments you make during the course of the bankruptcy plan.
You are invited to phone Harder, Wells, Baron and Manning, P.C. for further information regarding fees, 1-800-380-LAWS(5297). There is no fee for your initial office consultation with an attorney. At the initial attorney conference you will be given a written statement of how much your bankruptcy will cost. If necessary, we will work out a payment plan with you.
Arrearage: The accumulated monies owed on unpaid scheduled debts (i.e. the amount of the monthly payment times the number of unpaid months).
Attachment: When a creditor who has obtained a judgment seizes property to be sold to satisfy a debt.
Creditor: Company or person to whom you owe money.
Collateral: Property pledged as a guarantee that a debt will be repaid.
Debtor: Person who owes money.
Discharged debt: A debt no longer owed, as a result of an action in bankruptcy court.
Exempt income/property: Income or property protected by law against seizure or garnishment to satisfy a judgment.
Garnishment: When a creditor who has obtained a judgment seizes money from a bank account or paycheck to satisfy a debt.
Judgment: A court order stating that a debt is owed, and giving the creditor the right to ask for a debtor’s exam, attachment or garnishment.
Purchase money debt: A loan incurred in order to buy a specific piece of property, usually used as collateral for the debt (e.g., a car loan).
Repossession: When a creditor seizes property used as collateral for an unpaid debt.
Secured debt: A debt for which collateral has been pledged.