Consumer Bankruptcy

The lawyers at Henry, DeGraaff & McCormick, P.S. have been helping consumers deal with their financial challenges for the past decade. We understand the stress that unmanageable financial burdens can place on an individual and their families. We can help stop the harassing phone calls from bill collectors, put an end to garnishments and law suits, stop repossessions and stop foreclosures. Filing for bankruptcy allows most consumer debtors to eliminate most of their unsecured debt while keeping most if not all of their personal property, including household goods and furnishing, retirement accounts, etc. Please see our blog entry on Exemptions for more information on what types and how much property can be protected through the bankruptcy process.
For secured debt, the bankruptcy process allows many advantages to deal with secured debt in cars, mortgages, equipment liens and other debt secured by collateral. More information concerning the particular treatment of secured debt can be found on our blog referring to lien stripping and cram down.

Stop Collectors

When you file a bankruptcy, ALL COLLECTION ACTIONS STOP! A collector violates the law if they continue to call you or continue collection action after receiving notification of your bankruptcy filing. One of the most important benefits of filing for bankruptcy is the Automatic Stay. The “Automatic Stay” is an injunction that immediately goes into effect upon the filing of a bankruptcy case and stops all debt collection by creditors, with limited exceptions. In real world terms, that means that collection actions against you or your property immediately cease.
Actions that typically cease upon filing include:

  • Repossessions
  • Garnishments (through wages or bank accounts)
  • Foreclosure Actions
  • Lawsuits
  • Collection Calls
  • Collection Letters
  • Student Loan Collection
  • Tax Levies and Tax Garnishments
  • Payday Loan Collection

As long as the automatic stay is in effect, creditors cannot initiate or continue lawsuits, wage garnishments, or even call you on the phone to demand payment.*

There are some important exceptions to the “Automatic Stay” as it pertains to debt collection. Those exceptions include the following:

  • On-Going Child Support or Spousal Support
  • Driver’s License Suspension Due to Un-Paid Traffic Violations**
  • Occupational or Professional License
  • Seizure of a Tax Refund in Some Circumstances

In situations where child or spousal support is at issue, the person owed ongoing support can continue collecting it. If there is back support owed, then in spite of a Chapter 7 filing, the person who is owed the support can in most cases start or continue collecting it.

This includes not only collection through wage withholdings and garnishment of bank accounts, but also through seizure of a tax refund and suspension of a driver’s license, an occupational or professional license. In contrast, a Chapter 13 filing can stop these aggressive methods of collecting back support.

Taxing authorities can start or finish a tax audit, can send you a notice that you owe taxes, can demand you to file your tax returns, can assess your taxes and demand you to pay them, and in some situations can even file tax liens against you and your property.

* (Complications apply when a debtor has had a prior dismissed case in the past 12 months, or if certain other conditions are met. If this is the case, please tell us and will make sure to file the motion you need to get the court to impose the stay.)
** Drivers’ Licenses that are suspended can be reinstated upon the filing of a Chapter 13 Plan that includes payment of the traffic violations.

Stop Garnishments and Law Suits

One of the most important benefits of filing for bankruptcy comes at the moment you file. An automatic stay is an injunction that immediately goes into effect upon the filing of a bankruptcy case and stops all debt collection by creditors, with limited exceptions. In real world terms, that means that collection actions against you or your property, including repossessions, garnishments, and foreclosure actions, immediately cease. As long as the stay is in effect, creditors cannot initiate or continue lawsuits, wage garnishments, or even call you on the phone to demand payment. (Complications apply when a debtor has had a prior dismissed case in the past 12 months, or if certain other conditions are met. If this is the case, please tell us and will make sure to file the motion you need to get the court to impose the stay.)

Many judgments against you don’t matter once you file a bankruptcy. But certain ones are very dangerous. How can you tell the difference?

Letting a creditor get a judgment against you after it has sued you can sometimes result in that debt not being written off (“discharged”) in a later bankruptcy case. Or that debt may instead become much more difficult to discharge, even if eventually it is. But in the meantime it can turn an otherwise straightforward case into one much more complicated.

So how can certain judgments make a debt not dischargeable? Because of a basic principle of law which says that once one court has decided an issue, another court must respect that decision. The theory is that litigants should only get to use court resources once to resolve a dispute. Once a court decides an issue, it’s been decided (except for the limited exception of appeals to a higher court).

But as I said, most judgments by creditors are NOT a problem in bankruptcy. That’s because most creditor lawsuits are about only one thing: whether the debt is legally owed. A judgment that establishes nothing more than that can generally be discharged in a subsequent bankruptcy.

The judgments that are dangerous are more complicated. They arise in lawsuits in which the creditor is alleging that the person owing the debt incurred it in some fraudulent or inappropriate way. If the judgment clearly establishes that’s what happened, then the bankruptcy court later has to accept that decision. If the wording of the lawsuit and judgment shows that the behavior was of the kind that the bankruptcy laws say results in the debt not being discharged, then without further litigation the bankruptcy court would rule the same way.

These cases can get complicated because often it’s not clear precisely what the previous lawsuit decided, or whether what was decided meshes closely enough with the dischargeablility rules of bankruptcy. There’s also the question whether the matter was “actually litigated” if the person against whom the judgment was entered did not appear to defend the lawsuit or did not have an attorney. In other words you may or may not be able to get your day in bankruptcy court depending on whether in the eyes of the law you really already had your day in the prior court.

This risk of losing your chance to defend your case in bankruptcy court can be avoided by not waiting until after a judgment has been entered against you to see a bankruptcy attorney. That is especially true if the allegations against you involve any bad behavior other than not repaying the debt. As a general rule, if you get sued by any creditor you should see an attorney, even if you don’t plan on fighting the lawsuit and hiring an attorney for that purpose. That allows you to find out if the lawsuit could lead to a judgment making the debt not be dischargeable in a bankruptcy. And if so, you would then still have to option of filing the bankruptcy to prevent such a harmful judgment from being entered, instead of being stuck with it once you file a bankruptcy later.

Stop Repossessions

Have you been trying hard for months to keep or get your car payments current, putting up with late fees and constant notices or phone calls from the creditor threatening repossession? If your car lender is about to repossess your car or you are thinking about voluntarily surrendering the car to your lender to reduce your monthly payment obligation, STOP!

Many people must have a vehicle for work and/or other family obligations, and have no way to replace it. Being behind on your payments can leave you feeling stuck, with no good options. Before you give up your vehicle or let your vehicle be repossessed, talk to a lawyer. Giving up your vehicle may or may not be the right decision for you, but you should understand the consequences of this decision.

Stopping the monthly car payments will not alleviate your financial problem. The car lender will sell your vehicle at auction and sue you for the deficiency balance on the car loan. Depending on the size of your car loan, a lawsuit may result in a wage garnishment which could force you into a bankruptcy and leave you without a car.

Depending on your situation, you may be able to keep the vehicle you thought you couldn’t afford by filing a Chapter 13 bankruptcy.

There are several reasons for this:

  • The court will force your lender to accept smaller monthly vehicle loan payments.
  • The Court may lower the interest on your loan under certain conditions.

You may be able to pay off the debt and own the vehicle free and clear for a lot less than the loan balance if the loan balance can be crammed down to the fair market value of the vehicle.

Chapter 7 may also be an option as it will create an automatic stay that immediately prevents further collection attempts on the auto loan. The automatic stay can give you the time you need to either get caught up on your payments or work with your lender to modify the loan through a reaffirmation agreement or a redemption loan. In some cases, you may be better off giving up the vehicle and pursuing a new car loan after a Chapter 7 discharge.

Having a reliable vehicle is often essential to achieving a successful restart of your financial life. Filing bankruptcy may help prevent you from having to surrender a vehicle or allow it to be repossessed. It could allow you to keep your vehicle and immediately reduce the amount you have to pay for it. Before you lose that essential part of your financial plan, come see me to find out your options.

Stop Foreclosures

Mediation:

If you come to us soon enough, we may be able to stop your foreclosure using Washington’s Foreclosure Fairness Act. The FFA provides for mandatory mediation intended to help you get a mortgage modification before your lender can foreclose.

Bankruptcy:

Filing for bankruptcy can save your home from foreclosure and protect up to $125,000 of equity in your home. The two most common types of bankruptcy consumers file to protect their home from foreclosure are called Chapter 13 and Chapter 7.

By filing for bankruptcy you trigger the Automatic Stay. This is an automatic court order that immediately blocks foreclosures and other collection actions from happening. The very act of filing your bankruptcy case creates a stay.

Chapter 13:

Filing a Chapter 13 bankruptcy can stop a foreclosure sale from taking place and give you an opportunity to force a payment plan that allows you to catch up on the amount you are behind on your mortgage payments over a period of 3 to 5 years, while keeping current on future mortgage payments. If you cannot afford this type of plan but still have a steady income, you may be able to offer a plan that just requires you to keep making your current mortgage payment while you work with the mortgage lender for a modification. We may also be able to use mediation under Washington’s Foreclosure Fairness Act to get your mortgage modified.

Outside of Chapter 13, mortgage companies seldom let you have more than a few months to catch up on missed payments, an impossible task if you are not expecting to receive some windfall of money. During the entire repayment time that a Chapter 13 allows, you are protected from foreclosure and most other collection efforts, as long as you play by the rules laid out in your Plan. If you do play by those rules, you should be completely current on your home when you finish your case.

Chapter 7:

Filing a Chapter 7 bankruptcy stops a foreclosure sale from continuing and can give you a few months to work out a modification of your mortgage or catch up on your mortgage payments. Often, the discharge of your other debts in bankruptcy is just what the mortgage lender needs to approve you for a modification. However, you may still need Chapter 13 bankruptcy if your mortgage default isn’t quickly resolved.

Contact us today to learn more about how filing for bankruptcy can save your home and give you the fresh start you need.

Chapter 11:

If you have one or multiple rental properties that are facing foreclosure, Chapter 11 may offer you the ability to reduce the balance owed to the value of the property, rewrite the mortgages on your investment properties to new 30 or 40 year terms, and reduce the interest rate based on the prime rate plus a risk factor. The majority of our Chapter 11 clients experience substantial reductions of principal and/or interest rates. Unlike a Chapter 13, a Chapter 11 may not require you to catch up on the payments you have missed. Instead, you start over with a new loan, so you are current as soon as your Chapter 11 plan is approved by the court.