Bankruptcy In Virginia: What You Need To Know

According to the latest available data from the US Census Bureau as of 2021, the state of Virginia had a total outstanding debt of approximately $16.5 billion. This includes both general obligation debt and revenue debt. In terms of per capita debt, as of 2019, Virginia had a per capita debt of $2,006, which is lower than the national average of $3,946. According to the United States Bankruptcy Court for the Eastern District of Virginia, which includes most of the state, there were a total of 7,572 bankruptcy filings in Virginia during the 12-month period ending September 30, 2021. Of these, 6,845 were consumer bankruptcy filings (Chapter 7 and Chapter 13), while the remaining 727 were business bankruptcy filings (Chapter 11 and Chapter 13).

What Are The Bankruptcy Laws For The State Of Virginia?

Bankruptcy laws in Virginia are primarily governed by federal law, specifically the United States Bankruptcy Code. However, Virginia has some unique provisions that apply to bankruptcy cases filed in the state. Here are some key points about bankruptcy laws in Virginia:

• Chapter 7 bankruptcy: In Virginia, individuals who file for Chapter 7 bankruptcy must pass a “means test” to determine if they are eligible for Chapter 7 relief. The means test compares the individual’s income to the state median income and determines whether they have enough disposable income to pay their debts.
• Chapter 13 bankruptcy: In Virginia, individuals who file for Chapter 13 bankruptcy must repay a portion of their debts over a period of three to five years. The repayment plan is based on the individual’s income and expenses, and must be approved by the bankruptcy court.
• Exemptions: Virginia has its own set of exemptions that determine what property is protected from creditors in bankruptcy. Some of the most important exemptions in Virginia include the homestead exemption, which protects up to $25,000 of equity in a primary residence, and the personal property exemption, which protects up to $5,000 in personal property.
• Bankruptcy court: Virginia is divided into two federal judicial districts for bankruptcy purposes: the Eastern District of Virginia and the Western District of Virginia. Each district has its own bankruptcy court.

Types Of Bankruptcy For Individuals And Businesses

There are several types of bankruptcy available for individuals and businesses in the United States, each with its own unique set of rules and requirements. Here are the most common types of bankruptcy for individuals and businesses:

For Individuals:

• Chapter 7: Also known as “liquidation” bankruptcy, this is the most common form of bankruptcy for individuals. It involves the liquidation of non-exempt assets to repay creditors, and the discharge of most unsecured debts.
• Chapter 13: This type of bankruptcy involves the restructuring of debts into a manageable repayment plan, usually lasting between three and five years. Chapter 13 is typically used by individuals who have a regular income and want to keep their property.
• Chapter 11: While Chapter 11 is typically associated with business bankruptcies, individuals with substantial debts may also file for Chapter 11. This type of bankruptcy involves a restructuring of debts and business operations.

For Businesses:

• Chapter 7: Similar to individual Chapter 7, this type of bankruptcy involves the liquidation of assets to repay creditors. In the case of businesses, this usually means the closure of the business.
• Chapter 11: This type of bankruptcy is designed for businesses that want to reorganize their operations and restructure their debts. Chapter 11 is often used by larger businesses, but can also be used by smaller businesses and individuals with substantial debts.
• Chapter 12: This type of bankruptcy is specifically designed for family farmers and fishermen, and allows for the restructuring of debts and repayment over a period of time.

Learn More about the 3 main types of bankruptcy

Considering Business Bankruptcy? What You Should Know

If you’re considering filing for bankruptcy for your business in Virginia, here are some things to keep in mind:

• Bankruptcy is a last resort: Bankruptcy should be considered only after all other options have been exhausted. This includes negotiating with creditors, restructuring debt, and exploring other forms of financial relief.
• Chapter 7 vs. Chapter 11: There are two main types of bankruptcy for businesses: Chapter 7 and Chapter 11. Chapter 7 involves the liquidation of assets to repay creditors, while Chapter 11 involves the restructuring of debts and operations. Each has its own benefits and drawbacks, so it’s important to consult with an experienced bankruptcy attorney to determine which option is best for your business.
• Exemptions: Virginia has its own set of exemptions that determine what property is protected from creditors in bankruptcy. Some of the most important exemptions in Virginia include the homestead exemption, which protects up to $25,000 of equity in a primary residence, and the personal property exemption, which protects up to $5,000 in personal property. It’s important to understand how these exemptions may apply to your business before filing for bankruptcy.
• Tax consequences: Bankruptcy can have significant tax consequences for your business, including the possibility of cancelled debt income and the loss of tax attributes such as net operating losses. It’s important to consult with a tax professional to understand the potential tax implications of filing for bankruptcy.
• Seeking professional help: Filing for bankruptcy can be a complex and challenging process, so it’s important to seek the help of an experienced bankruptcy attorney who can guide you through the process and help you understand your options.

Are All Debts Discharged In Bankruptcy?

While filing for bankruptcy can provide relief from many types of debt, not all debts can be discharged in bankruptcy. Here are some types of debts that are generally not discharged in bankruptcy:

• Certain taxes: While some taxes can be discharged in bankruptcy, others cannot. Generally, income tax debts that are more than three years old and meet certain other requirements can be discharged, but other types of tax debts, such as payroll taxes or fraud penalties, are not dischargeable.
• Student loans: In most cases, student loans cannot be discharged in bankruptcy. However, there are some circumstances under which student loans may be discharged, such as if the debtor can show that repayment would cause undue hardship.
• Child support and alimony: Debts related to child support and alimony cannot be discharged in bankruptcy.
• Debts incurred through fraud or wrongdoing: Debts that were incurred through fraud or other wrongdoing, such as embezzlement or theft, are generally not dischargeable.
• Fines and penalties: Fines and penalties imposed by government agencies, such as traffic tickets or fines for regulatory violations, are not dischargeable.

What Happens To Your Credit Score And Ability To Get Future Loans?

Filing for bankruptcy in Virginia can have a significant impact on your credit score and your ability to obtain credit in the future. Bankruptcy will remain on your credit report for up to 10 years, and during that time, it may be challenging to get approved for credit, including loans, credit cards, and other types of financing. When you file for bankruptcy in Virginia, your credit score will typically drop significantly. The exact impact on your credit score will depend on several factors, such as your credit history, the type of bankruptcy you file (Chapter 7 or Chapter 13), and the amount of debt that you have. In general, Chapter 7 bankruptcy, which involves liquidating your assets to pay off your debts, will have a more severe impact on your credit score than Chapter 13 bankruptcy, which involves creating a payment plan to repay your debts over a period of three to five years.

Does Bankruptcy Affect Tax Debts?

Bankruptcy in Virginia can have different effects on tax debts depending on the type of tax debt you have, when the tax debt was incurred, and the type of bankruptcy you file. In general, most tax debts are not dischargeable in bankruptcy, which means that you will still be responsible for paying them even after your bankruptcy case is over. However, there are some situations where tax debts can be discharged, such as if the tax debt is more than three years old, and you filed the tax return at least two years before filing for bankruptcy.

Will You Lose Your Assets?

When you file for bankruptcy in Virginia, whether you will lose your assets or not depends on the type of bankruptcy you file, the value of your assets, and whether they are exempt from bankruptcy proceedings. In a Chapter 7 bankruptcy, also known as liquidation bankruptcy, a trustee is appointed to sell any non-exempt assets to pay off your debts. However, Virginia has some of the most generous bankruptcy exemptions in the United States, which means that many filers are able to keep most or all of their assets. Some of the most common bankruptcy exemptions in Virginia include:

• Homestead exemption: This allows you to exempt up to $25,000 in equity in your primary residence.
• Personal property exemption: This allows you to exempt up to $5,000 in personal property, including furniture, appliances, and clothing.
• Vehicle exemption: This allows you to exempt up to $6,000 in equity in one motor vehicle.
• Retirement accounts: Retirement accounts such as 401(k)s, IRAs, and pension plans are generally exempt from bankruptcy proceedings.

In a Chapter 13 bankruptcy, also known as reorganization bankruptcy, you will typically be able to keep all of your assets, but you will need to create a repayment plan to pay off your debts over a period of three to five years.

Statute Of Limitations For Collections in Virginia

In Virginia, the statute of limitations for collections on most types of debt is generally five years from the date of your last payment or written acknowledgement of the debt. Once the statute of limitations has expired, the creditor can no longer sue you to collect the debt. It’s important to note that the statute of limitations varies depending on the type of debt. For example, the statute of limitations for judgments in Virginia is 20 years, while the statute of limitations for unpaid taxes is generally 10 years. Additionally, it’s important to understand that the statute of limitations is not the same as the length of time that negative information can remain on your credit report. Most negative information, including late payments, collections, and bankruptcies, can remain on your credit report for up to seven years from the date of the first delinquency.

Be Aware Of The Cons

While bankruptcy in Virginia can provide a fresh start for individuals struggling with overwhelming debt, it also has some potential drawbacks or cons that you should consider before filing. Here are some of the cons of bankruptcy in Virginia:

• Impact on credit score: Filing for bankruptcy can have a significant negative impact on your credit score, which can make it difficult to obtain credit in the future.
• Loss of assets: In a Chapter 7 bankruptcy, non-exempt assets may be sold to pay off your debts. This could include items like a second home, valuable personal property, or a second vehicle.
• Limited dischargeability of debt: Not all types of debt are dischargeable in bankruptcy. Debts like student loans, taxes, and certain court judgments may not be dischargeable.
• Public record: Bankruptcy is a public record, which means that anyone can access information about your bankruptcy filing.
• Impact on future job prospects: Some employers may view a bankruptcy filing as a negative factor in hiring decisions.
• Potential stigma: Some individuals may feel ashamed or stigmatized by filing for bankruptcy, even though it is a legal and legitimate process.

Compare the Pros and Cons of Bankruptcy: Pros and Cons of Filing Bankruptcy

Will You Regret Filing Bankruptcy?

While bankruptcy can be a powerful tool for getting out of debt, there are several reasons why people may regret filing bankruptcy:

• Loss of assets: In a Chapter 7 bankruptcy, non-exempt assets may be sold to pay off your debts. If you lose assets that are important to you, like a second home or a valuable personal item, you may regret filing for bankruptcy.
• Damage to credit score: Bankruptcy can have a significant negative impact on your credit score, which can make it difficult to obtain credit in the future. If you need to borrow money for a major purchase like a home or a car, you may regret filing for bankruptcy if you can’t get approved for a loan.
• Limited dischargeability of debt: Not all types of debt are dischargeable in bankruptcy. Debts like student loans, taxes, and certain court judgments may not be dischargeable. If you file for bankruptcy hoping to discharge these types of debt and are unable to do so, you may regret filing.
• Public record: Bankruptcy is a public record, which means that anyone can access information about your bankruptcy filing. If you’re concerned about your privacy or reputation, you may regret filing for bankruptcy.
• Impact on future job prospects: Some employers may view a bankruptcy filing as a negative factor in hiring decisions. If you’re concerned about your future job prospects, you may regret filing for bankruptcy.
• Emotional toll: Filing for bankruptcy can be a stressful and emotional experience. If you’re not prepared for the emotional toll of bankruptcy, you may regret filing.

What Happens If You Do Not Qualify For Bankruptcy In Virginia?

If you do not qualify for bankruptcy in Virginia, it may be because you do not meet the eligibility requirements for Chapter 7 or Chapter 13 bankruptcy. In that case, you may need to explore  other debt relief options, such as debt settlement.

There are some potential benefits to debt settlement over bankruptcy that may make it a more favorable option for some individuals.

• No BK on your credit report: Filing for bankruptcy shows on your credit report for up to 10 years. On the other hand, debt settlement does not show as a bankruptcy.
• Cost: Filing for bankruptcy can be expensive, with filing fees, attorney fees, and other costs adding up quickly.
• Emotional Impact: People report horror stories of the negative emotional impact of BK.
• With a bankruptcy for the rest of their life: Employers or lenders can ask if someone has filed BK for the rest of their life. It is much less likely to be asked if one ever used debt settlement to pay back an agreed to amount.
• Control: With debt settlement, you may have more control over the process and negotiations with your creditors, whereas with bankruptcy, a court will make the final decision.
• Less severe consequences: Filing for bankruptcy can have significant consequences, such as the liquidation of your assets, whereas debt settlement may allow you to negotiate a more manageable repayment plan while keeping your assets.

Bankruptcy vs. Debt Relief: What’s Right For You and How We May Be Able To Help

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