Chapter 7: A Fresh Start

Chapter 7 bankruptcy will wipe out your obligation to pay on unsecured debt such as credit cards, payday loans and medical bills. The wiping out of the debt is called a discharge. The idea is to give people who file Chapter 7 a fresh start.

You can generally opt to keep secured debt, such as home mortgage loans and car loans. If you do choose to wipe out a mortgage or car loan you will need to turn the collateral back to the lender.

Not all debt can be wiped out in Chapter 7. Child support, spousal maintenance (alimony), recent tax debt, student loans and traffic tickets, for example, will not be discharged. There are other types of debts, such as recently made charges on a credit card, which may be excluded from discharge depending on the circumstances and whether the creditor chooses to pursue its claim. Also not everyone is permitted to do Chapter 7. If your income is too high, you may need to consider filing a Chapter 13 instead.

Most consumer Chapter 7 cases are what are referred to as 'no asset' cases. In theory what is happening in a Chapter 7 case is that the assets of the person or company filing the bankruptcy are sold by the Court and the proceeds used to pay creditors. This theory holds true for businesses, which are liquidated in the Chapter 7 process. People, however, are allowed to keep a certain amount of their assets even though they file Chapter 7. In the State of Washington you can retain up to $125,000 equity in your homestead (your home), one car per person (so long as you're not driving a Roll Royce: There is a limit on the allowed equity in the car), effectively all of your personal effects, household goods and furnishings, as well as pension funds, IRA, 401-Ks and a small (in Washington very small) amount of cash. In over 90% of cases filed by individuals, the people filing are able to retain all of their assets. In the few cases where the Court takes an asset to sell, it is generally something like a second home or rental property.

I provide free consultations to potential clients who are considering bankruptcy to help them decide whether bankruptcy is the best option for them, and if so which type will work best for their personal situation and goals. Just call me at (425) 255-5535 to set up an appointment or ask any questions. We are conveniently located near the intersection of I-405 and state route 167 in Renton, about two miles east of Southcenter Mall.

This is a small office, so you will sometimes reach our voicemail. We will get back to you as soon as we can.

I am a debt relief agency under the terms of the Bankruptcy Code. I help people file for bankruptcy relief under that Code.

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