Chapter 7 Bankruptcy
Chapter 7 bankruptcy is sometimes called a straight bankruptcy or liquidation bankruptcy. If you file chapter 7, your debts will be discharged in about 90-100 days. Once you file bankruptcy, your creditors may not garnish, sue or even contact you. This is an amazing and powerful relief that only filing bankruptcy can provide and is called the automatic stay. Also, in the vast majority of cases, debtors are able to keep all of their assets.
Chapter 7 is great option for you if you are drowning in debt and you do not have money left over after paying your reasonable living expenses (home mortgage or rent, utilities, transportation expenses, groceries, and the necessities of life). Chapter 7 will wipe out your credit card debt, personal loans, medical bills, past due utilities, balances remaining after repossession, or even balances on car loans you can no longer afford. It can also help you get back your license if it is suspended due to debt or help you reinstate utility services. As you can see, chapter 7 it is very powerful form of relief.
There are some debts that are not typically discharged such as most taxes, student loans, criminal fines and restitution, some government overpayments, and debts obtained through fraud. Also, chapter 7 will not remove liens from property, so if you have a secured debt, though your liability on the debt will be removed, you will not be able to keep the property that secures the loan unless you continue to make payments on those debts. The vast majority of chapter 7 debtors are also able to keep all of their assets too!
Keep reading for more details.
Basic requirements for filing Chapter 7
- You haven’t filed Chapter 7 and received a discharge in the last 8 years.
- You haven’t filed Chapter 13 and received a discharge in the last 4 years.
- You completely and accurately disclose ALL of your assets, creditors, and your financial history. (Click here for information on your paperwork requirements.)
- You have not transferred assets in an attempt to hide those assets.
- Your income is under median income for your household size in Washington state, AND you cannot afford to pay a meaningful amount to your creditors after covering your reasonable living expenses. OR your income is over median, but you can pass the means test.
- You complete pre-filing credit counseling course and a post-filing debtor education course (both approximately $25).
- You must pay a filing fee of $338 and attorney fees prior to filing if you hire an attorney.
Which assets may I keep under Chapter 7?
My clients often wonder if they’ll be able to keep their house, their car, and their valuables. In the vast majority of cases, the answer is YES!
As an individual who is filing Chapter 7 bankruptcy, both federal and state law provide statutory protections for your property, called exemptions, which allow you to keep your property and get a FRESH START! In fact, in the vast majority of cases, people keep ALL their assets.
In Washington State, you have the ability to use either Washington Exemptions or Federal Exemptions. While each set of exemptions provides generous protections for homes, vehicles, retirement accounts, tools you use in your profession, wedding rings, and regular household goods, and a miscellaneous category called “wildcard,” debtors typically will use the Washington Exemptions if they own a home and have a significant amount of equity. The Washington Homestead Exemptions are generous and are based on the median sale in your county in the previous calendar year. For example, the current exemption limit in Pierce County in 2025 is $567,800.00. Click here for a detailed look at the State and Federal exemptions.
So, when you hear from family, friends or neighbors that they know someone who has lost their house or car in bankruptcy it is not generally because they were not able to protect those items using bankruptcy exemptions, but most likely for one of the two following reasons: 1) that person did not continue to make payments on the asset, either because they were not aware that automatic payments on those accounts would stop due to the filing of the bankruptcy which prohibits creditors from taking any action to collect a debt after your case is filed, OR 2) that person was simply not able to afford those house or car payments.
When people are not able to afford these payments, they sometimes are able to negotiate a lower interest rate or payment particularly on an auto loan by signing a reaffirmation agreement. Reaffirmation agreements in the Western District of Washington for home mortgages are not enforceable, so it is unlikely that they will be approved by the Court. Reaffirmation agreements on general unsecured loans are not done but are sometimes appropriate for an auto loan.
Since very few people file reaffirmation agreements, because they generally do not favor the debtors, I charge extra to assist people with this process. If your auto loan is under water and or the car is pretty old, my opinion is that it does not make sense to sign these agreements and instead to purchase a different car post-bankruptcy. Car lenders are generally eager to grant discharged debtors an auto loan because they are not able to file bankruptcy for another 8 years (chapter 7) or 4 years (chapter 13). This is an issue that I discuss with all clients who have car loans and are filing chapter 7 and it is addressed on a case-by-case basis.
If you are considering chapter 7, an experienced attorney can assist you in determining whether your assets will be protected. If you are not able to protect all of your assets, chapter 13 can provide you with a way to keep your assets and pay the equivalent of the liquidation value of your assets to your creditors.
Do I qualify for chapter 7 bankruptcy in WA?
As I mentioned before, your ability to qualify depends on your income and your expenses. The starting point of this analysis is whether you are over or under median income for your household size in the state of Washington. If you are over median income, then your attorney will have to perform statutory calculations under the means test to see whether you may still qualify. It’s safe to say that most people who are over median income do not pass the means test. Usually when someone is over median income, I will advise that they should be prepared to file a chapter 13, but I will run the numbers just in case chapter 7 will work.
Sometimes a very large mortgage payment, large domestic support obligation (child support, spousal maintenance), or large amounts of priority tax debt can push the scales over to a chapter 7, but that is not common. There also may be timing considerations as median income is determined by adding up all income from every source (whether taxable or not) earned and received in the six months prior to the month that you file the bankruptcy case. If your income is irregular for any reason, timing your filing can assist in qualifying for a chapter 7.
As a skilled and experienced bankruptcy attorney, I can assist you get the relief that you qualify for and that you need!
Even under median income, debtors do not always qualify for chapter 7
But what if you are under median income? If you are under median income, but you still have a significant amount of money after paying your reasonable monthly living expenses, you may not qualify for chapter 7. Courts have determined that if you can afford to pay 25% of your debt back over 36 months, then you should be paying that amount back in a 3-year chapter 13 case.
Example: For example, Susie works at a coffee shop and between her wages and tips she brings home about $500 per week or $2,165 a month. She has a car payment of $500 and pays $200 for insurance and $400 to maintain and operate her vehicle, but Susie lives with her parents and does not really pay for rent, utilities, or groceries. She is even covered under her parent’s cell phone plan. She has some incidental expenses such as occasionally purchasing clothing $50 per month, getting her hair or nails done $75 per month and going out to coffee shops or with friends $200.00. Her credit card bills are about $1000.00 a month, making it very tight for Susie. However, if she weren’t to pay credit card bills, she would have $740 left in her budget. If Susie does not make any adjustments to her expenses, she may not qualify for bankruptcy.
If you don’t pass the chapter 7 means test, then you can still file for bankruptcy via chapter 13. Chapter 13 bankruptcy can be much better for debtors than private debt negotiation plans, or credit counseling solutions because it provides a plan that creditors must follow, and you cannot be harassed by creditors while you are in the repayment plan. This is a feature that non-bankruptcy options cannot offer.
How the chapter 7 bankruptcy process works
You’ll start by filing a petition with the bankruptcy court that serves the area where you live. My office is in Tacoma, WA, but I can assist debtors who are able to use Zoom anywhere in the Western District of Washington. You can find a complete explanation of the process of preparing to file and filing chapter 7 with my officer here, but below is a brief summary of the process:
- Initial consultation with my office (after completing a brief questionnaire)
- Retain and pay required fees
- Complete full intake questionnaire and provide supporting documentation
- Bank Statements (6 months)
- Paystubs or other proof of income (6 months)
- Car Titles or Registrations
- Values for House and Vehicles
- Tax returns and W2s
- Retirement account statements
- Monthly mortgage and car payment statements
- Proof of insurance for vehicles and home
- Information on financial assets such are retirement accounts or life insurance
- If you own a business, there will be additional requirements
- Review of prepared Bankruptcy forms called Petition, Schedules and Statements.
- Filing Case
- Completion of Debtor Education Course
- Attendance at 341 Meeting of Creditors
- Wait 60-70 days to obtain a discharge
As an experienced bankruptcy attorney, I can help you!
Even the simplest of cases requires attention to detail and knowledge of a complex set of laws to make sure that you fulfill all of the requirements of the bankruptcy code. The smallest of mistakes can result in the loss of valuable assets or needless dismissal of the case due to failure to meet deadlines or complete paperwork requirements.
For these reasons, finding a lawyer you can trust to assist you through this process could be essential.