Authored By: DC Bar Pro Bono Program
Table of Contents
Assets - money or property you own
Creditor - a person, business or organization to whom you owe money
Debt - money or property that is owed to another person
Debtor - a person who owes money
Discharge - to "wipe out" debts. A process by which debtors are no longer responsible for their debts.
Exempt - income or assets that are protected from creditors even without a bankruptcy filing
Garnish - the process of taking money from a debtor's paycheck to repay his or her debts. This can only happen after a court proceeding and a judgment.
Income - money received as a result of work, public benefits, gifts, loans or other sources.
Judgment - a legal decision that states that a person owes money to his or her creditors. A judgment can occur only after court proceedings. A creditor must get a judgment before they can garnish a debtor's wages or take his or her property.
Judgment-proof - describes a person whose income and assets are all exempt, or protected from creditors, without having to file for bankruptcy.
Non-Exempt - income or assets that are not protected from creditors without a bankruptcy filing.
Secured Debt - debt for which the creditor holds something of value as collateral, such as your home, your car or your furniture. If you fall behind on the payments of secured debts, your creditor may seize the collateral by foreclosing on your home or repossessing your car or your furniture.
Unsecured Debt - debt for which the creditor does not hold any collateral.
Bankruptcy is a legal process that can give people a "fresh start" and encourage them to work. Bankruptcy laws were written to protect debtors from having all their income and property taken by creditors.
In some cases, bankruptcy will "wipe out," or discharge debt. In other cases, a bankruptcy filing will result in a repayment plan.
Many people have a lot of debt. Trying to pay off debt can often feel scary or frustrating. But, bankruptcy is not for everyone who feels this way. Bankruptcy should be considered only when it can help you change your financial situation for the better. There are several types of bankruptcy including Chapter 13 (for repayment plans) and Chapter 7 (for getting a discharge of your debts). The type of bankruptcy you qualify for may depend on your individual income and/or the amount of debt you have.
Things to consider:
- Sometimes, your income and/or property already is protected from creditors WITHOUT filing bankruptcy. Therefore, there may be no reason for you to file bankruptcy.
- On the other hand, if you are in danger of having your wages garnished or property seized, bankruptcy may be the best solution.
What kinds of income are protected from creditors WITHOUT filing bankruptcy?
Certain income is protected from creditors WITHOUT filing bankruptcy. These protections come either from D.C. law or federal law.
If your only income is from one of the following sources (and you have no property to protect), you may NOT need to file bankruptcy:
- After-tax (net) wages from work of $217.50 each week or less
- Social Security benefits
- Veteran's benefits
- Disability, illness or unemployment benefits
- Alimony or support that is necessary for your support or to support your dependents
- A pension or annuity awarded because of age, disability, length of service or death if it is necessary for your support or to support your dependents
- Retirement benefits
- Worker's Compensation
What kinds of property are protected from creditors WITHOUT filing bankruptcy?
Certain property is protected from creditors WITHOUT filing bankruptcy. These protections come from D.C. law.
If your only property is one of the following (and you have no income to protect), you may NOT need to file bankruptcy:
- Your home, if you live there and you are current with your mortgage payments. If you rent out rooms in your home or separate units in the same building as your home, your home may not be protected.
- Motor vehicle worth $2,575 or less (you determine worth by subtracting what you owe on the car from the market value of the car)
- Property not exceeding $425 in any one item or $8,625 total value in household goods and furnishings, clothes, appliances, books, animals, crops or musical instruments (value is determined based on replacement value. Other property may also be protected without filing bankruptcy
What happens if my income and property are protected from creditors WITHOUT filing bankruptcy?
- If all of your income and property may be protected from creditors WITHOUT filing bankruptcy, you are "judgment-proof." What this means is that even if your creditors sue you in Court and get a judgment, they still should not be able to collect any money because your income and property are all protected by law.
- Because judgments are good for 12 years, and can be extended for an additional 12 years after that, if you start earning more income or income from a different source and your financial situation changes, you may want to consider bankruptcy at that time.
What if I still want to file bankruptcy to stop the harassing phone calls and threatening letters?
- There is no law to stop you from filing bankruptcy just because you don't need to. However, filing bankruptcy is a major legal action and should be seriously considered. Also, once you file bankruptcy, you will be unable to file again for at least 8 years. You will be legally responsible to pay any debt you incur after you file.
- There may be better options for you than filing bankruptcy. See the section titled "What Happens If I Don't File Bankruptcy?"
What if I've been denied employment or housing because of my poor credit?
Even if you are judgment-proof, you may want to consider filing bankruptcy if you are having a hard time finding work or housing because of your credit problems. Some employers and housing providers prefer working with people who have filed bankruptcy over those who have poor credit and have not filed bankruptcy.
What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?
- Both a Chapter 7 bankruptcy and Chapter 13 bankruptcy are available to most consumers, but there are income limits for both Chapter 7 and Chapter 13. Most consumers who decide to file bankruptcy choose Chapter 7 bankruptcy. This allows consumers to "discharge" or wipe out most of their debt while still keeping their income and most of their property.
- Chapter 13 bankruptcy is a reorganization of your debt and requires the debtor to partially or fully repay the debts over a period of three to five years in order to receive a discharge of the balance of the unpaid debts. It is a way to stop creditors from collection actions during the bankruptcy. In return, the debtor agrees to repay debts by setting aside some income through a process called a Chapter 13 plan. A Chapter 13 debtor may be able to keep property he would otherwise lose in Chapter 7.
- Most consumers can choose whether to file a Chapter 7 or Chapter 13 bankruptcy. However, some higher income consumers are only allowed to file Chapter 13, depending on their total income, assets, and expenses.
Because most debtors elect a Chapter 7 bankruptcy, the remainder of these questions will be answered assuming a debtor is proceeding under a Chapter 7.
Bankruptcy can wipe out or "discharge" most consumer debts. This means that you no longer have a legal obligation to pay those debts. Those creditors cannot sue you or harass you for the money anymore. Bankruptcy can even stop your wages from being garnished.
Which debts can I discharge?
Bankruptcy can discharge most of your consumer debts like credit cards, utility and phone bills and medical bills. However, bankruptcy may not discharge all your debts.
The following debts CANNOT be discharged in bankruptcy:
- Student loans
- Child support
- Most taxes
- Debts resulting from fraud (for example, if you were not truthful on your credit card application)
- Debts resulting from a "willful or malicious injury" (for example, a fine from a drunk driving conviction)
Will I have to sell my property to pay my debts?
- Most people who file bankruptcy can keep most, if not all, personal property unless they own something very valuable, like an expensive diamond ring or fur coat.
- If you live in D.C., your home may be fully protected even if you do not file bankruptcy as long as: 1) you live in your home and do not rent out any rooms or separate units in the same building as your home, and 2) are current with your mortgage payments. In some cases, individuals who rent out rooms may be able to keep their homes, too, but this is complicated and you should consult with a lawyer.
- Most people get to keep their car as long as they're current with the car note and there’s not too much equity in the car.
- Even if you are not required to sell your property, if there is a judgment lien on your real estate, the lien will survive the Bankruptcy discharge.
Before you file bankruptcy, you MUST complete credit counseling within 180 days before you file your petition. You must get a certificate that you completed the credit counseling course and file a copy of the certificate with your petition. You must use a credit counseling service approved for the District of Columbia. You can find a list here. You can read additional information about the credit counseling requirement here.
- After you file bankruptcy, all collection actions against you are "stayed," at least temporarily. This is called an "Automatic Stay" and means that your creditors have to immediately stop trying to collect money from you. Your creditors cannot harass you, garnish your paycheck, take you to court, or take your property.
- The Court sends notice of your bankruptcy to all your creditors. If your paycheck is being garnished, you may want to tell your employer, the Court where the garnishment is pending, and the creditors and its lawyer that you have filed bankruptcy as soon as you file the papers with the Court so the garnishment will stop.
Meeting of Creditors
- When you file your bankruptcy "petition" or forms with the Court, you will get a date to attend a mandatory "Meeting of Creditors" which will take place between 30-40 days after the date of filing. This Meeting is not before a Judge, but you will appear before the appointed "Trustee" in your case who is an officer of the Court. You will be placed under oath and must swear to tell the truth and answer questions about your bankruptcy petition, your debts, and your assets. You must bring a picture ID and your Social Security card
- This is a chance for the Trustee and your creditors to ask you questions about your bankruptcy case and to make sure all the information you provided in your petition is complete and accurate. Many creditors rely on the Trustee to do this and so do not attend the Meeting.
- Some creditors attend these Meetings to ask you to "reaffirm" your debt, or they may ask you to do so later on. This means they want you to agree to be legally obligated to pay your debt, even after the bankruptcy discharge. In return, they will continue to give you credit privileges. Think long and hard before you agree to do this. You can always pay your creditors back WITHOUT legally obligating yourself to do so.
- If the Trustee is satisfied with your petition and your answers and none of your creditors file an objection, you will be granted a "discharge" about 60 days after the "Meeting of Creditors." This means that you are not legally obligated to pay “dischargeable debts”. Some debts cannot be discharged, such as student loans, most tax obligations, and other debts specified in the Bankruptcy Code. However, you are legally responsible for new debts that you incur after you file for bankruptcy or for your nondischarged debts such as taxes and student loans.
- In order to get your final discharge, you must complete a financial management course through a debtor education provider approved for the District of Columbia and file proof that you took the course with the Court. You can find a list of debtor education providers here.
- You may be asked if you have ever filed bankruptcy when you apply for a job, housing, a loan or for insurance. Sometimes, this may affect whether you will get what you want. However, the government cannot discriminate against you because you filed bankruptcy.
How often can I file for bankruptcy?
You can file a Chapter 7 bankruptcy and get a discharge every 8 years.
What if I just moved to D.C.?
You must live in D.C. for the greater portion of the last 180 days. This means, if you have lived in D.C. for less than 3 of the last 6 months, you may not be eligible to file in D.C.
What if I am married? Does my spouse also have to file?
No. You may file by yourself even if you're married. However, if your spouse is responsible for any of the debts (perhaps because s/he co-signed), your spouse is still responsible for those debts. In other words, your spouse will still be obligated to pay those "joint" debts even if you receive a discharge.
What about co-signors?
The discharge is personal to you, so your co-signor will still have to pay joint debts even if you receive a discharge.
What if I want to pay some of my debts after I file bankruptcy?
You may pay any debt you wish even after you file bankruptcy. Bankruptcy just relieves you of the legal obligation to pay those debts. So, if you owe someone money and you want to pay, you are free to do so.
Should I reaffirm my debts?
Some creditors may ask you to "reaffirm" your debt. This means they want you to agree to be legally obligated to pay your debt, even after the bankruptcy. In return, they will continue to give you credit privileges. Think long and hard before you agree to do this. You can always pay your creditors back WITHOUT legally obligating yourself to do so.
When is the best time for me to file bankruptcy?
This is complicated and you probably should discuss this with a lawyer.
- There are some instances that may push you to file bankruptcy as soon as possible; for example, if your wages are currently being garnished.
- However, there may be reasons why it would be a good idea for you to wait to file. For example, if you are about to have an additional and unavoidable expense because of a hospital stay, you may want to wait to file so you can include that debt in your bankruptcy.
- Also, if you recently purchased something like a new car, took large cash advances, or made “luxury purchases” like a new stereo system on your credit card, the creditor may object to that debt being included in the bankruptcy, arguing that you knew you would be filing, so you went out and made these purchases. You may want to wait at least 6 months after the purchase so you can include that debt in your bankruptcy.
Do I need a lawyer to file bankruptcy?
You do not have to have a lawyer to file bankruptcy. You are allowed to file the petition yourself. However, the decisions of whether to file, when to file, and how to complete the bankruptcy forms are all complicated. A lawyer may be able to help you sort through some of the issues and help you prepare the petition.
How can I find a bankruptcy lawyer and what if I can't afford to pay for a lawyer?
- Go to the "Find a Lawyer" tab above for a list of agencies that may be able to help for free if you qualify, or to the link at the bottom under that same tab that explains how you can locate a lawyer for a fee.
- If you decide to hire a lawyer, you and the lawyer must sign an agreement before the lawyer helps you specifying how much the lawyer will charge and what services s/he will provide.
How much does it cost to file bankruptcy?
The court cost and administrative fees to file a Chapter 7 bankruptcy is $306.00. Lawyer fees are extra if you decide to hire one. In certain cases, the Court may allow the fee to be paid in installments or waived.
Where do I get the forms?
- If you decide to file a bankruptcy petition without a lawyer, you can get the forms from the Clerk's Office of the U.S. Bankruptcy Court for the District of Columbia. It is located in Room 4400 on the 4th floor of the E. Barrett Prettyman U.S. Courthouse at 333 Constitution Avenue, N.W. The forms include instructions.
- You also can get the forms online at: http://www.uscourts.gov/bkforms/bankruptcy_forms.html#official Make sure you print out the instructions along with the forms.
- Many stationery stores or office product stores have bankruptcy kits that include forms and instructions for probably under $20.00.
- Your local library may have sample forms that you can photocopy.
How can I get my credit report?
You can request a free report from each of the three credit reporting agencies once every 12 months. You can make the request online at AnnualCreditReport.com. You can also call 1-877-322-8228, or fill out the Annual Credit Report Request form and mail it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. There are three major Credit Reporting Agencies. You may want to get all three reports because there may be different information in each report.
If you‘ve already requested your free credit reports during the last 12 months and need to get additional copies, you can request the reports directly from the credit reporting agencies. They may charge you up to $11 for each report, but you may be able to get a free report if:
- you are unemployed and looking for work
- you are on welfare
- the report is wrong because of fraud
- or someone is taking action against you because of information in the report and you are asking for the report within 60 days of learning about the action.
What about my credit rating?
- A bankruptcy filing stays on your credit report for ten years and on Court records for twenty years. However, most people who file bankruptcy already have a poor credit rating. Bankruptcy is intended to give filers a "fresh start."
- Many creditors will offer credit to people who just filed bankruptcy because they have little debt (since most of it was discharged in the bankruptcy) and because they won't be able to get a Discharge in Chapter 7 for another 8 years (so they will have to pay their new debts).
- If you cannot pay your bills and you do not file for bankruptcy, your creditors can sue you and take you to court. If your creditors win, they will receive a "judgment" against you. A "judgment" means that the judge has ruled that you legally owe the creditor money.
- The creditor can try collect the judgment several ways, including getting a court order to garnish money from your paycheck or bank account. If your income and property are protected from creditor attachment WITHOUT filing bankruptcy (check the list above), the creditors are not legally allowed to take it. You may need to notify a creditor and/or the Court that money in your bank account is protected.
- If you have income and/or property that is not protected, creditors may try to garnish or take money out of your paycheck or bank account or place liens against or repossess certain property.
- You cannot go to jail or be accused of neglecting your children just because you don't pay your bills.
What if I want to try to arrange for a payment plan with all my creditors?
You may want to contact the Consumer Credit Counseling Service at 800-747-4222 for assistance with setting up a payment plan with all your creditors. You may contact other counseling services. Make sure that you understand any fees that will be charged andthat they are fair and reliable credit counseling services.
Is there anything else I can do if I decide not to file bankruptcy?
If you decide not to file bankruptcy:
- You can write a letter to all your creditors telling them that you are not able to pay your debts. You can ask your "creditors" (for example, the hospital or a credit card) to stop calling and sending you letters. You can demand that "collection agencies" (for example, a law firm or other agency that has been assigned to collect the debt) stop calling and sending you letters. Click here for a sample letter you can send.
- You can tell the creditors abide by the Fair Debt Collection Practices Act. Click here for a link to the Act. You can learn more about unfair debt collection here.
- You can contact your creditors and propose a payment plan.
- You can fight a debt if you disagree you owe the amount of money the creditor claims. You can ask for an "accounting" which is an itemized list of the charges the creditor claims you made. If you disagree with any of the charges, you should immediately notify the creditor in writing.