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Bankruptcy

Bankruptcy is a legal process provided by federal law (the Bankruptcy Code) which gives those who are experiencing financial difficulties relief from creditors and an opportunity for a fresh start. It is provided for by Article I, Section 8, of the United States Constitution and is codified in Title 11 of the United States Code. Bankruptcy has its roots in the Old Testament Book of Deuteronomy (15:1-2) and Book of Nehemiah (10:31). The fundamental role of the bankruptcy laws was formally defined in a 1934 decision by the United States Supreme Court:

"[I]t gives to the honest but unfortunate debtor...a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt." Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934).

Debts often get the best of even the most conscientious and miserly. Getting in debt and struggling financially is a fact of life which happens to virtually everyone to varying degrees at some time or another in their lives. Life's circumstances such as separation, divorce, pregnancy, illness, disability, job loss, business closure, alcohol or drug addiction, gambling, over-spending - the list goes on - can all lead to loss of income, increased expenses, instability and inability to make payments.

Bankruptcy delivers a "new opportunity and clear field for future effort" to those suffering financial difficulties.

The Bankruptcy Process

The bankruptcy process begins by determining whether chapter 7, 11, 12 or 13 best fits your needs. You will be asked to provide your attorney with information and documentation necessary to complete a petition, various schedules, and statements of your financial affairs which are filed with the bankruptcy court. These various documents provide a comprehensive snapshot of your assets, liabilities, income and expenditures, and other pertinent information as of the date of filing. If your circumstances change after you file under one chapter you may be eligible to convert your case to a different chapter.

Automatic Stay

The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization, or simply to be relieved of the financial pressures that drove him into bankruptcy. H.R. Rep. No. 95-595, at 340 (1977). In re Ionosphere Clubs, Inc., 922 F.2d 984 (2d Cir. 1990) (breathing spell from creditors is a principal purpose of automatic stay).

The automatic stay is arguably the most powerful legal provision in the land. There is no other law, statutory or otherwise, existing and in force, that may be taken on behalf of someone facing financial difficulties that can so quickly, effectively, and dramatically bring relief from creditors. The instant a bankruptcy is filed all creditors are stopped, totally and immediately, from calling, writing, garnishing wages, repossession, foreclosure, lawsuits, and much more. The automatic stay is effective against all creditors, collection agencies, attorneys, government entities, the IRS, DOR, L&I. The instant a bankruptcy is filed the debtor and the debtor's property is placed under the protection of the court.

Although there are some exceptions to the automatic stay they are limited to criminal actions (unless brought to collect a debt), actions to collect alimony, maintenance or support, or actions to enforce a government's police or regulatory power. Under some circumstances a creditor can get permission from the court to proceed but to do so requires the filing of a motion which takes a significant amount of time and gives you an opportunity to raise defenses and counterclaims against the creditor. You will be surprised how creditors suddenly become willing to settle disputes and how they become much more reasonable after the filing of a bankruptcy and the imposition of the automatic stay.

Means Test

Some individual debtors filing for bankruptcy relief are required to complete a "means test." If the gross income of one's household exceeds the median gross income for a household of their size then a series of calculations known as the "means test" must be performed to determine if that person should file under chapter 7 or whether it is more appropriate to file under chapter 13. Many (if not most) bankruptcy filers do not need to complete the means test because they do not have gross income that exceeds the median gross income for a household of their size. For those who do not need to complete the means test the "disposable income" standard will determine which chapter of bankruptcy (chapter 7 or chapter 13) is most appropriate.

Creditors Meeting

Approximately four to six weeks after the filing of your bankruptcy petition, you will be required to attend a creditors meeting which is presided over by a bankruptcy trustee. The trustee is not a judge, but an individual appointed by the United States Trustee to oversee bankruptcy cases. At the creditors meeting your attorney or the trustee will ask you questions under oath regarding the content of your bankruptcy papers, your assets, debts and other matters.

All your creditors receive notice of the meeting and are entitled to come and question you concerning any information you may have provided them, the information set forth in your schedules and your intentions concerning any property they may have a security interest in. It is rare for a creditor to come to the creditor meeting.

Discharge

At the conclusion of your bankruptcy case you will receive an "Order of Discharge" which is a court order that officially relieves you of the legal responsibility to pay those debts which have been discharged. The bankruptcy laws prohibit your creditors from taking any form of collection action on discharged debts. Discharged creditors can no longer bring a lawsuit against you or otherwise communicate with you about the former debts. Those who file for chapter 7 usually receive their discharge about 60 days after the creditors meeting. Those who file for chapter 13 usually receive their discharge 60 to 90 days after they have completed all the payments provided for by their chapter 13 plan.

Nondischargeable Debt

There are certain debts that are not discharged in bankruptcy because of public policy reasons, because of the nature of the debt, or because the debt was incurred through improper conduct. The most common types of this category of debts are certain tax claims, debts not listed on the bankruptcy schedules, debts for child support or alimony, debts for willful and malicious injuries to person or property, debts owed to governmental units for fines and penalties, most student loans, debts for personal injury caused by driving while intoxicated, debts owed to retirement plans, and certain debts for condominium and cooperative housing fees.

Some debts stemming from fraud or malicious conduct will be discharged unless the creditor brings a lawsuit against you during the pendency of your bankruptcy case and the bankruptcy court, after a trial on the issues, determines that the debt should not be discharged. There are exceptions to nearly every dischargeability rule so it is important to not assume that a debt will, or will not, be discharged in bankruptcy without first consulting with an attorney familiar with bankruptcy law.

Common types of debts which are discharged in bankruptcy are credit card debts, repossessed cars, old cell phone bills, old electric bills, collection accounts, debts associated with judgments, payday loans, medical bills, magazine subscriptions, NSF checks, overdrawn accounts and the like.

Secured Debt

Common examples of secured debts are car loans and home mortgages. If you want to keep the car or home, you must continue to make the payments on the debt. If you decide you can't afford (or just don't want to) make the payments, you can always give the property back to the creditor and eliminate your responsibility for the debt entirely. There are some options available in chapter 7, 11, 12 and 13 whereby you can force a creditor to accept repayment of secured debts on terms favorable to you.

Reaffirmation

In our experience reaffirmation is rarely a good idea. Those who file for bankruptcy generally do so to eliminate, or discharge, the obligation to pay certain debts and obtain a fresh start. Reaffirmation is a promise to pay a debt that would otherwise be discharged in bankruptcy. Reaffirmation defeats the purpose of the bankruptcy. If one reaffirms a debt and cannot make the payments the creditor can pursue them personally despite the bankruptcy. Creditors cannot sue someone personally if they do not reaffirm the debt. Those filing for bankruptcy should think long and hard before giving up the protection of the bankruptcy discharge by signing an agreement to pay debts that would otherwise be discharged.

We often advise a client to reaffirm a vehicle loan because there are special Bankruptcy Code provisions that require them to do so. This requirement does not apply to real estate loans. We typically advise against reaffirming a real estate loan unless the lender agrees to modify the terms in favor of the borrower such as curing a default, recasting arrears as principal, extending the term, reducing the monthly payment, reducing the interest, or the like.

Lenders typically quit reporting mortgage payments to credit bureaus once a bankruptcy is filed. If a home mortgage is reaffirmed the lender must continue to report the payments to the credit bureau. This may help one's credit score if they make payments on time. It will hurt one's credit score if they miss payments or are late.

We believe mortgage lenders should report payments to the credit bureaus if the borrower is making the payments and the lender is accepting them. This is true whether the loan is reaffirmed or not. If a borrower is making payments the lender should report those payments to the credit bureaus.

If a borrower is refinancing through their current mortgage company, it already has proof of all payments made. If a borrower is refinancing through a new lender, they can obtain a printout from the current mortgage company showing the payment history since the bankruptcy filing and provide it to the new lender. A borrower can also send proof of payment to the credit bureaus and request they report payments on their credit report and dispute the incorrect reporting by the mortgage company.

Applying for a home loan modification after receiving a discharge in bankruptcy is another option. The lender must consider the loan modification application despite the bankruptcy discharge. If one is approved for a modification it creates a new obligation which will be reported to the credit bureaus.

Our office does not create reaffirmation agreements on behalf of creditors - whether it is car loans, home loans, or other debt. It is the creditor's responsibility to produce the reaffirmation agreement.

Those filing for bankruptcy should think long and hard before giving up the protection of the bankruptcy discharge by signing an agreement to pay debts that would otherwise be discharged.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is often referred to as "straight" bankruptcy. It is a four month process at the conclusion of which certain debts (credit cards, collection accounts, medical bills, payday loans, repossessed cars, etc.) are "discharged" (wiped out) meaning the bankruptcy filer is relieved of the responsibility to pay them, thereby giving them a "fresh start." One does not have to be destitute and living on the street or in their car in order to qualify for bankruptcy. Nor will the person be destitute and living on the street or in their car at the conclusion of their bankruptcy.

One of the fundamental purposes of bankruptcy is to give those in financial crisis a clean slate and a fresh start. In order to facilitate that fresh start certain property is protected in the bankruptcy process from the reach of creditors and the trustee. Washington State has very liberal exemptions which permit most clients to keep everything they own. In Washington, the federal exemption scheme is also available and is often utilized due to its liberal wildcard exemption which is currently $11,975.00 for single filers and $23,950.00 for those who are married and file jointly.

Within limits (and depending on which exemption scheme you choose) you are permitted to keep the equity in your family home, cash, bank accounts, household goods and furnishings, jewelry, clothing, retirement accounts, automobiles, tools of your trade, and more. If you own property which does not fit within an allowable exemption (which is rare) it could be sold with the proceeds going to creditors in accordance with bankruptcy law.

Chapter 9 Bankruptcy

Chapter 9 is titled "Adjustment of Debts of a Municipality" and provides for the reorganization (similar to a reorganization under chapter 11) of municipalities. The definition of municipality includes cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts.

Chapter 11 Bankruptcy

Chapter 11 generally provides for the reorganization of the debts of a corporation, partnership, or individual. Upon filing creditors are immediately prohibited from continuing collection activities. The basic goal is to give the debtor relief from its creditors while maintaining control of its business and giving it the opportunity to reorganize its business and present a plan of reorganization for repaying creditors. If the creditors accept the plan of reorganization, and the court approves the plan, a debtor can reorganize its personal, financial, or business affairs.

In a chapter 11 case, as in a chapter 13 case, the debtor's goal is to obtain confirmation of a plan which will favorably adjust the debtor's obligations to prebankruptcy creditors. However, there is a fundamental difference between chapter 13 and chapter 11 in the process leading to plan confirmation.

In a chapter 13 case, the debtor is legally entitled to confirmation of the plan if the plan meets certain statutory criteria set forth in 11 U.S.C. §§ 1322 and 1325. If these criteria are met, the plan must be confirmed. Ordinarily, creditors do not act collectively in a chapter 13 case. Each creditor individually receives notice and opportunity to be heard concerning the substance of the plan but can prevent confirmation only by showing that a legal condition under section 1322 or 1325 has not been satisfied.

In a chapter 11 case, creditors vote on the plan of reorganization. Once a plan has been approved by the creditors, it is normally confirmed by the court. Confirmed plans can be consensual or nonconsensual, and the Code gives certain protections to dissenting creditors. A creditor may voluntarily waive its right to vote on the plan as a strategic matter. For example, a creditor may agree to less than full payment and support a plan because it will receive more in reorganization than in a liquidation under chapter 7.

Small Business Reorganization -- Subchapter V to Chapter 11

The Small Business Reorganization Act (SBRA) of 2019 became effective in February 2020. Under the SBRA certain debtors will now reorganize under Subchapter V of chapter 11. The goal of Subchapter V is to minimize the time and expense associated with a typical chapter 11 reorganization. It gives the small business owner, and individuals with primarily business debt, a better chance at reorganizing. To qualify as a small business debtor, the debtor must be a person or entity engaged in commercial or business activity with aggregate secured and unsecured debts of $2,725,625. The debtor must show that at least 50 percent of its debt is business-related but there is no requirement that the debtor be engaged in the commercial or business activity at the time of filing. In Subchapter V only the debtor may propose a plan which must be submitted within 90 days of filing the case. Subchapter V eliminated the need for a disclosure statement, but the plan must include a brief history of the debtor, a liquidation analysis, and financial projections showing the ability to make payments under the plan.

Chapter 12 Bankruptcy

Chapter 12 is a powerful reorganization tool for "family farmers" and "family fisherman", providing authority for debt reduction that exceeds what can be accomplished in either a chapter 11 or chapter 13. It is like chapter 13 but allows for the "cram down" of farm mortgages and boat loans. Mortgage lenders and other secured creditors must only be paid the value of the collateral. The balance exceeding the value of the creditor's collateral is treated as unsecured debt, which is typically paid little or nothing. Interest can often be reduced and payments on secured debt can be extended beyond the plan term.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is process in which one can reorganize their financial affairs. While chapter 7 is the most common type of bankruptcy, chapter 13 is more appropriate under certain circumstances and when it is utilized properly it is an excellent tool for regaining financial stability. Chapter 13 bankruptcy is basically a debt consolidation process that works (unlike some debt reduction programs advertised on television). Chapter 13 provides the participant with the ability to consolidate all their debt into a single monthly payment and eliminates penalties and interest from continuing to accrue. In chapter 13 you typically need only pay to unsecured creditors (credit cards, medical bills, etc.) what you can afford, not the balance owed. Determining what one can afford is based on income & expenses, which is often zero.

Chapter 13 is commonly utilized to stop a home foreclosure. Immediately upon filing for chapter 13 the foreclosure is stopped, and the lender is prohibited from proceeding. The filer then submits a chapter 13 plan of reorganization that will include provisions that address the delinquent mortgage payments or other issues that led to the foreclosure. The chapter 13 plan of reorganization could provide that the delinquent payments will be cured over the 3 to 5 year life of the plan or it might provide that you will request a loan modification or some other workout plan that will cure the default on mortgage. There are certain limits on what can be done with a home loan on a primary residence but the important thing is that a chapter 13 bankruptcy will immediately stop the foreclosure and give you an opportunity to explore the various options that are available to you without the pressure of an impending sale. If you are upside down on your home, it is often possible to remove a second mortgage in a chapter 13 bankruptcy. You can modify many short term or reverse mortgages, mortgages on which the payments are nearly complete, and mortgages with balloon payments falling due before the end of the chapter 13 plan. Even when the last mortgage payment came due before the filing of the chapter 13.

A debtor in chapter 13 has the right to modify the rights of secured creditors pursuant to 11 U.S.C. 1322(b)(2) which provides the plan may modify the rights of holders of most secured claims, other than some claims secured only by a security interest in real property that is the debtor's principal residence. 11 U.S.C. § 1325(a)(5) generally permits a debtor to pay only the allowed secured claim of a creditor, to modify payment terms and interest rates, and to treat the unsecured portion of an under-secured claim as an unsecured claim in the chapter 13 plan.

Chapter 15 Bankruptcy

Chapter 15 is titled "Ancillary and Other Cross-Border Cases" and is designed to provide a mechanism for dealing with cases of cross-border bankruptcy. Chapter 15 applies when a debtor or its property is subject to the laws of the United States and one or more foreign countries.

Creditor Harassment

Bankruptcy will immediately stop creditor harassment. Once a creditor is notified of your bankruptcy it must immediately stop all collection efforts. My office will notify a creditor about the bankruptcy if there is a pending garnishment, repossession or foreclosure. Once the case is filed the bankruptcy court mails notice to all the creditors listed in the schedules. A bankruptcy filing will immediately stop wage garnishments, car repossessions, and foreclosures.

If a creditor repossesses your property, forecloses on your home or otherwise continues with collection activities against you after being advised of your bankruptcy filing it is a violation of the automatic stay provisions of the bankruptcy code and exposes the offending party to a potential claim for damages, including costs and attorney's fees, and, in appropriate circumstances, punitive damages.

Keep Property

You do not lose your property by filing bankruptcy. In a chapter 7 case, you can keep that property of yours which is "exempt" under state law and federal law. In the State of Washington, prior to filing your bankruptcy petition, you must choose whether you want to use the state exemptions or the federal exemptions. In some circumstances it is more advantageous to utilize the federal exemptions in other circumstances it is better to utilize the state exemptions. The exemption statutes are complicated, and you should talk with a bankruptcy attorney to determine which exemptions are most appropriate for your case. In general, and within specific dollar limits, you will be allowed to keep the equity in your home, your car, your household goods and furnishings, your personal effects, the items you need for your job (computer, books, tools, etc.), and your right to receive certain benefits such as social security, unemployment compensation, veteran's benefits, public assistance, and your pension.

While the exemptions available to you will allow you to keep property even in a chapter 7 case, your exemptions do not allow you to keep property in a chapter 7 if you are too far behind on the payments on a loan for the property. If you want to keep property like a home or a car and are behind on the payments you should consider filing a chapter 13 allows you to keep the property and pay the amounts you are behind over a 3 to 5-year period. You should also consider filing a chapter 13 bankruptcy if you have a drivers or occupational license which is suspended for failure to pay some financial obligation such as traffic fines, damage done in a traffic accident, or child support. You can file chapter 11, 12 or 13 if you own property with equity that exceeds the value of the available exemptions.

Home and Car

You will not lose your home or car by filing bankruptcy. Even if there is non-exempt value in the property you can keep it provided you pay the non-exempt value to creditors through a reorganization plan (chapter 11, 12, or 13). If you have a loan against the home or car you must continue to pay on that because your obligation on secured loans will not be discharged unless you return the property to the creditor.

Property After Bankruptcy

Although some people believe they are prohibited from owing anything after they file bankruptcy this is not true. There is no such prohibition. You can keep all the property in your bankruptcy for which there is an exemption. In probably 99% of the cases filed in Washington everything one owns is protected by an exemption. You are also allowed to keep anything you acquire after the bankruptcy although there are rules that apply to inheritances, property settlements and life insurance benefits received within six months after the day the bankruptcy is filed.

Credit after Bankruptcy

To what extent your credit will be affected by filing bankruptcy depends on several factors. If your credit is perfect, there is no doubt that bankruptcy will have a negative effect. If your credit is already bad, or will be that way soon, filing bankruptcy may be one of the best things you could do and may improve your credit. Evidence of job and income stability and reasonable debt load are typically more important considerations for potential creditors than the fact that your debts were discharged in a bankruptcy.

Bankruptcy drastically reduces or eliminates debts completely. It also stabilizes your employment prospects and your home life by eliminating the endless stream of late notices, creditor calls, wage garnishments, repossessions, disconnect notices, and other legal actions. Many creditors view bankruptcy as meaning you can make more timely payments on new credit because you typically have no debt and you cannot file for another chapter 7 bankruptcy for eight years.

It typically takes two years to rebuild credit to the point that one won't be turned down for a major credit card or loan. Most creditors look for steady employment and a history of making payments after the bankruptcy. The decision of whether to extend credit belongs to each lender but the fact that you filed bankruptcy, if properly explained, is less damaging than a history of unpaid accounts.

Rebuild Credit

Many people find that they can rebuild their credit after bankruptcy. In reviewing a credit application, creditors typically look for steady employment, a history of making and paying for purchases on credit, and the maintenance of a checking and savings account. Department stores and credit unions are a good place to begin rebuilding your credit. After bankruptcy it is important that you make prompt payments on your remaining debts, such as rent, utilities, automobile loans and home mortgages. Remember that establishing credit is usually accomplished one loan at a time by building up a history of consistent and timely payment.

Drivers' License

Bankruptcy law prohibits the government from denying, revoking, suspending or refusing to renew a license, permit, charter franchise or similar grant because of filing bankruptcy of bankruptcy. If your drivers' license has been suspended for non-payment of fines you can get it back immediately through a chapter 13 bankruptcy.

Employment Discrimination

The government and private employers are prohibited from discriminating with respect to employment solely because of bankruptcy, insolvency or the discharge of a debt.

Student Loans

In bankruptcy student loans are not discharged unless you can prove that repaying the student loan would create an undue hardship on you and your dependents. Undue hardship is difficult to establish but it can be done under certain circumstances.

Outside bankruptcy there are numerous programs offering student loan assistance and/or forgiveness. The programs available include Public Service Loan Forgiveness (PSLF), Forgiveness with Income-Based Repayment (IBR), Forgiveness with Pay as you Earn (PAYE), Forgiveness with Revised Pay as you Earn (REPAYE), Forgiveness with Income-Contingent Repayment (ICR), Federal Perkins loan cancellation, student loan forgiveness for teachers, student loan forgiveness for nurses, loan repayment assistance for doctors and other health care professionals, loan repayment assistance for lawyers, student loan repayment assistance programs for other careers, military student loan forgiveness and assistance, and student loan discharge for special circumstances.

Bankruptcy prohibits the government and those making loans guaranteed or insured under a student loan program from denying a grant, loan, loan guarantee, or loan insurance to a person that is or has been a debtor in a bankruptcy case.

Stop Foreclosure

Filing for bankruptcy will stop a foreclosure dead in its tracks and give you the opportunity to evaluate your options. It is possible to save your property by filing chapter 11, 12 or 13 bankruptcy with a plan curing missed payments over time. Bankruptcy is an extremely powerful tool that can stop foreclosure.

Stop Repossession

Bankruptcy can stop the repossession of a car, truck, business property, and other personal property, and give you an opportunity to catch up on missed payments over time. We can get back a car or other property that has been repossessed if you act quickly before it is sold at auction which requires written notice and takes several weeks.

Stop Lawsuits, Judgments and Garnishments

The filing of bankruptcy immediately stops any lawsuit from being filed or judgment being taken against you. If a lawsuit is already pending it can go no further. If judgment has already been entered it cannot be enforced. If a garnishment is pending it can be stopped. If you are being garnished it can be stopped. Depending on the circumstances you may be entirely relieved of your obligation to pay the judgment or pay the judgment over time. Judgment liens against your home can be removed if it impairs the homestead exemption.

Reduce Payments

A chapter 7 Bankruptcy can significantly lower your monthly payments by discharging your obligation on certain debts. A chapter 11, 12 and 13 bankruptcy allows you to repay debts on terms which may be significantly more favorable than those provided for in the original loan documents.

Co-signers

Under a chapter 13 bankruptcy co-signers who are liable with the you on consumer debts are protected from the collection activities of creditors.

Debt Consolidation

Speak with a bankruptcy attorney before making the decision to take out a debt consolidation loan. If the debt consolidation loan is secured by your home it changes unsecured debt, which is typically dischargeable in bankruptcy, into secured debt which is typically not dischargeable in bankruptcy. Rarely, if ever, a good idea. Consolidation loans raise other issues as well. Speak to an attorney first.

Tax Consequences of Bankruptcy

When you borrow money from someone you do not need to report it as income because you have an obligation to repay it. If the lender later cancels or forgives the amount you borrowed it may be reportable as income to you and the lender may be required to report the amount of the canceled or forgiven debt to the IRS on a 1099-C, Cancellation of Debt. As always, there are certain exceptions to every rule so you should check with the IRS and be certain of the tax ramifications of your intended course of action before making any final decisions.

One exception is the Mortgage Debt Relief Act of 2007 currently allows taxpayers to exclude the income that is realized as a result of modification of the terms of their mortgage, or the foreclosure of a qualified principal residence. Currently, up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately) and applies to home mortgage debt forgiven in calendar years 2007 through 2012. Another exception to the general rule is if you are insolvent when the debt is canceled, the canceled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.

Debt discharged in bankruptcy is not a taxable event so, when in doubt, file for bankruptcy first. After the bankruptcy filing you can modify the loan, do a deed-in-lieu of foreclosure, short-sale, or whatever, without sweating over the tax implications.

Credit Reports

Under the Fair Credit Reporting Act, both the credit reporting agency and the creditor are required to correct inaccurate or incomplete information on a credit report. An important method of clearing up a credit record is to dispute negative items appearing in your credit file directly with the reporting agency. Unless the dispute is frivolous or irrelevant the credit reporting agency must investigate the matter and correct it or delete it if the information is inaccurate or cannot be verified.

You should dispute all items that are inaccurate, incomplete, or which do not tell the whole story. For example, a creditor may have orally agreed that you could make late payments but nevertheless reported the debt as delinquent or you may have paid late because the merchandise was defective and you didn't make any payments until the problem was resolved. The credit reporting industry has a policy that requires a creditor to respond to a dispute within 30 days. After the reinvestigation is complete you will be notified of the outcome. All future reports must contain the corrected information and must not contain the deleted information. You can also require the agency to notify past report users of the correction or deletion.

The Federal Trade Commission, Bureau of Consumer Protection has publications and an education program to help consumers reestablish credit and address credit problems. Contact the credit reporting agencies at:

Equifax Information Service Center
Attn: Consumer Dept.
P.O. Box 740241
Atlanta, GA 30374
(888) 909-7304
http://www.equifax.com

Experian
Consumer Assistance
PO Box 2350
Chatsworth, CA 91313-2350
(888) 397-3742
http://www.experian.com

Trans Union Consumer Relations
National Consumer Disclosure Center
PO Box 7000
North Olmstead, OH 44070
(312) 408-1400
http://www.transunion.com

Foreclosure Help, Loan Modification and Other Alternatives

The most common reason for foreclosure of a home is failure to make mortgage payments when due. The causes of nonpayment vary from loss of job, illness, divorce, interest rate adjustments, mortgage servicing abuses and the like.

Foreclosure is a legal process whereby a home or real property is sold to satisfy an unpaid debt. The debt is often a home mortgage, but tax liens, judgment liens, mechanics' liens, and other debts can also lead to foreclosure. In Washington the foreclosure of mortgages, deeds of trust, and real estate contracts are governed by Title 61 RCW. Mortgages or deeds of trust typically are foreclosed either judicially pursuant to RCW 61.12 or nonjudicially pursuant to RCW 61.24. Judicial foreclosure requires a lawsuit during which the borrower can raise defenses to the foreclosure. In a nonjudicial foreclosure there is no court supervision of the process unless the borrower files a lawsuit for injunctive relief to raise defenses to the foreclosure. In Washington, the judicial foreclosure process takes a minimum of 120 days whereas the nonjudicial foreclosure process takes a minimum of 190 days after default. In Washington the homeowner retains possession (and ownership) to the property until completion of the foreclosure process.

If you are facing a foreclosure sale there are several options by which you can save your home. You could file for bankruptcy, you could file a lawsuit against the bank, apply for a loan modification or other workout option.

Once you file for bankruptcy an "automatic stay" immediately goes into effect. The automatic stay acts as an injunction which prohibits the bank from proceeding with the foreclosure or otherwise trying to collect its debt. All foreclosure activity is immediately halted during the bankruptcy process.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy will immediately stop the foreclosure process and give you an opportunity to explore your options.

Chapter 13 Bankruptcy

Chapter 13 is commonly utilized to stop a home foreclosure. Immediately upon filing bankruptcy the foreclosure is stopped dead in its tracks. One then submits a plan to the court detailing how they will catch up on the missed mortgage payments either gradually over 3 to 5 years or through a modification of the mortgage with the lender.

Foreclosure Mediation

In Washington homeowners facing foreclosure can request mediation with their lender to review available options to keep their home. Homeowners can request mediation if they have received a Notice of Default or Notice of Foreclosure from their lender. If the notice is a Notice of Foreclosure or Notice of Trustee Sale you only have 20 days after the recording date to request mediation, so it is important to act quickly. All lenders (or "beneficiaries") are covered by the mediation requirement, except financial institutions that have conducted less than 250 foreclosure sales during the preceding calendar year and claimed their exemption status to Washington Department of Commerce.

Short Sale

This involves selling your home for less than is owed on the mortgage. It requires the approval of your mortgage holder and is a very arduous process for the homeowner because of the strict requirements imposed by lenders. There are real estate agents that specialize in dealing with the details necessary to obtain lender approval for a short sale. In our experience short sales rarely make sense for our clients.

Deed in Lieu of Foreclosure

It is sometimes possible to negotiate to have the lender accept your voluntary surrender of the property to avoid foreclosure. This is referred to as a "deed in lieu of foreclosure. The mortgage company will not accept a deed in lieu if there is a junior mortgage or other lien on the property. In that case a foreclosure would be necessary to clear title to the property. The bank will rarely accept a deed in lieu. They also rarely make sense for our clients.

Tax Problems

We can help end your business and personal tax problems. Stop business closure, tax levies and liens, IRS, DOR and L&I collections, garnishments, asset seizure, fresh start assistance, unfiled tax returns.

There are many options to address delinquent taxes including entering an installment agreement, offer in compromise, innocent spouse relief, collection due process hearing, currently not collectible status, penalty abatement and bankruptcy.

Although taxes are frequently not discharged by bankruptcy there are some taxes can be discharged in bankruptcy. Personal income taxes that meet certain parameters can be discharged. Trust fund taxes cannot be discharged. There are a series of cross-references in the bankruptcy code which must be analyzed to determine whether tax obligation is dischargeable. Even if a tax is not dischargeable, a bankruptcy filing will stop the IRS, DOR, L&I and other taxing authorities from pursuing collection and give you an opportunity to pay them over time.