If your debts are beginning to overwhelm you, you may be considering bankruptcy to help you get back in control of your finances. Since bankruptcy is governed by federal law, the actual process for filing bankruptcy is the same in every state, but certain aspects of the process are determined by state law or by each district's bankruptcy court.
Types of Bankruptcy
Before you file for bankruptcy, you first must determine which type of bankruptcy to file – Chapter 7 or Chapter 13 – because the type of bankruptcy determines the paperwork and process required. Chapter 7 bankruptcy is a liquidation of certain assets with the money raised from the liquidation going to pay creditors. Chapter 13 bankruptcy creates a repayment plan for part or all of your debt. In every state and for both types of bankruptcy, you must complete mandatory credit counseling, and both types of bankruptcy result in a discharge of certain debts once the case is complete.
Chapter 7 Means Test
To qualify for Chapter 7 bankruptcy, you must pass a “means test,” which involves comparing your income to the median income for a household of your size in Washington. As of 2012, the median income levels in Washington vary from $53,302 for one income earner to $82,942 for a family of four and increasing $7,500 for each family member over four. If your income is lower than the median income, you can file Chapter 7. If not, you can also qualify if your monthly income, less allowable expenses, calculated over 60 months, is less than $11,725 or 25 percent of certain debts as long as that 25 per cent is less than $7,025. If you don’t qualify to file Chapter 7 bankruptcy, you can still file under Chapter 13.
Chapter 7 Exemptions
If you file Chapter 7 bankruptcy, exemptions determine what property you can keep. In some states, you can only choose state exemptions, but Washington law allows you to choose either federal or state exemptions for both Chapter 7 and Chapter 13. For example, you may be able to keep certain equity in your home, your car, pension or personal belongings. If your property is not exempt, the bankruptcy trustee – the person who administers your bankruptcy case – is entitled to sell the property to pay your unsecured debts. Unsecured debts are those that are not secured by collateral, such as credit cards. In many Chapter 7 cases, there are no assets to liquidate once exempt assets and secured debts are removed.
Chapter 13 Exemptions
In a Chapter 13 bankruptcy, exemptions determine how much you will pay to your unsecured creditors through your Chapter 13 repayment plan. Under Chapter 13, you typically keep all of your property. But since a Chapter 13 repayment plan must provide your creditors with at least as much money as they would have received had you filed Chapter 7, exemptions are used to calculate whether your repayment plan will be accepted by the court. For example, the value of certain household goods, food, fuel, keepsakes and appliances are deducted from your available assets. In Washington, the equity in your residence -- called your homestead -- is exempt up to $125,000. As of 2012, your private library, including books and electronic media, is exempt up to $3,500, and all family photos and keepsakes are exempt. Other exemptions exist in federal and state law.
Paperwork and Process
When you are ready to file, you must complete a bankruptcy petition and file it with the appropriate federal bankruptcy court, either the Eastern or Western District of Washington. Your petition should include the forms documenting your financial information for a Chapter 7 means test if you file under Chapter 7. If you file under Chapter 13, you must provide the court with a repayment plan. Your petition must also include payment of the court costs and administrative fees. As your case progresses, you must also complete a personal finance class to receive a discharge of your remaining debts.