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Bankruptcy in Washington State
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The New Bankruptcy Laws and you.
How do the new laws affect Washington State bankruptcy filings?
On April 20, 2005, President Bush singed into law a new set of bankruptcy statutes that significantly altered the prior bankruptcy laws. These laws took effect on October 17, 2006.
Under the new law, it may be more difficult for some people to completely eliminate their unsecured debts through a Chapter 7 bankruptcy.
But most people can still qualify for a Chapter 7 under the new bankruptcy laws.
The good news in Seattle and throughout Washington State is that the new bankruptcy laws have actually had a fairly minimal impact on the vast majority of people seeking to file a Chapter 7 bankruptcy.
Indeed, most people seeking to file a Chapter 7 bankruptcy under the new bankruptcy laws remain fully eligible to do so. The new bankruptcy laws did impose stricter qualification requirements. But these requirements have not significantly impacted most potential filers.
In fact, it is estimated that nearly 90% of those eligible to file for a Chapter 7 bankruptcy in Washington prior to the new bankruptcy laws taking effect remain eligible to do so.
The most significant Chapter 7 changes under the new bankruptcy laws.
The new bankruptcy laws have made the most significant impact in the pre and post filing requirements and the supporting documentation that must be provided and verified.
First, all debtors are now required to get credit counseling before filing. Debtors must also complete additional credit counseling on budgeting and debt management before their debts will be discharged.
Additionally, some higher income filers will no longer be eligible for a Chapter 7. Instead, they will be forced into a Chapter 13 where at least a portion of their debts must be repaid.
The new Chapter 7 bankruptcy laws have also added new requirements for filing in addition to altering several critical exemptions.
How does all this really affect me?
This change is significant and mandatory. Before you can file for bankruptcy under either Chapter 7 or Chapter 13, you must now complete credit counseling with an agency approved by the United States Trustee's office. Our offices will assist you in finding an approved agency.
Counseling is required even if it is clear that a repayment plan is not feasible. On the plus side, you are required only to participate, not to go along with any repayment plan the agency proposes.
If the agency does come up with a repayment plan, however, you will have to submit it to the court, along with a certificate showing that you completed the counseling. You will not be allowed to file your bankruptcy prior to counseling completion.
Once your bankruptcy case is over, you'll have to attend another counseling session, this time to learn personal financial management. The bankruptcy court will not discharge your debts until you have fulfilled this requirement.
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The new bankruptcy law is also crafted to limit your ability to stop creditors from harassing you through the use of the “automatic stay.” For example, if you have filed for bankruptcy within the past year and need to re-file because the previous case was dismissed, your creditors may be able to collect again from you 30 days after the new case is filed. In certain circumstances, however, the automatic stay may be continued after the 30-day period for good cause.
If two or more bankruptcy cases were dismissed during the prior year, the automatic stay does not go into effect at all unless the court orders it after a hearing and a demonstration that the filing was made in good faith. In these situations, there is actually an assumption that you have filed your bankruptcy case in bad faith unless you can prove otherwise.
If you file for bankruptcy in order to stop an eviction proceeding, the landlord will be able to continue with the eviction if for any reason you fall behind on your new rental payments after the case is filed.
OTHER MISCELLANEOUS CHANGES
If you have moved from a different state within the past two years, you may be subject to the laws of your former state of residence in connection with what property you are allowed to keep in Chapter 7 bankruptcy.
The amount of equity in your home that you’re allowed to keep is limited to $125,000 if you have owned your home for fewer than 3 years and 4 months (unless you moved from another home in Texas into your current home).
Debts owed to a single creditor totaling more than $500 for luxury goods incurred within 90 days of filing are presumed to be non-dischargeable, as are cash advances of $750 within 70 days.
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There are several other changes in the new bankruptcy laws that can affect you in certain circumstances. There are also many new provisions in the revised bankruptcy laws that are confusing, conflicting and counterintuitive. In many cases, these new laws will need judicial interpretation or additional rules to be issued for guidance.
The new laws make it especially dangerous to rely on advice from paralegal services, forms generation services, or attorneys who do not practice consumer bankruptcy regularly.
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