Debt Settlement: An Alternative To Bankruptcy For Washington Residents
According to the State Debt Policy Advisory Commission’s 2020 Annual Report, Washington State had a total outstanding debt of $19.2 billion as of June 30, 2020. This includes general obligation bonds, revenue bonds, lease-purchase agreements, and other types of debt. As of 2021, the average student loan debt per borrower in Washington State was $26,778, according to the Institute for College Access and Success, the average credit card debt per household in Washington State was $7,040, according to a report by credit reporting agency Experian and the average mortgage debt per borrower in Washington State was $280,200, according to Experian. According to the United States Courts, there were a total of 15,059 bankruptcy filings in the Western District of Washington in 2020. Of those, 9,979 were Chapter 7 filings, 4,193 were Chapter 13 filings, and 85 were Chapter 11 filings.
Bankruptcy Laws in Washington
Washington state has its own bankruptcy laws, which govern the bankruptcy process for individuals and businesses within the state. These laws are in addition to the federal bankruptcy laws that apply throughout the country. Washington state has two bankruptcy courts: the Eastern District of Washington Bankruptcy Court and the Western District of Washington Bankruptcy Court. These courts have jurisdiction over bankruptcy cases filed within their respective districts. In Washington state, individuals and businesses can file for bankruptcy under Chapter 7, Chapter 11, or Chapter 13 of the Bankruptcy Code. Chapter 7 bankruptcy is the most common type of bankruptcy filed in Washington state, and it is used to eliminate most types of unsecured debts, such as credit card debts, medical bills, and personal loans. Chapter 11 bankruptcy is typically used by businesses to reorganize their debts and continue operating. Chapter 13 bankruptcy is used by individuals to reorganize their debts and create a repayment plan over a period of three to five years. Washington state also has exemptions that protect certain types of property from being seized by creditors in bankruptcy. These exemptions include homestead exemptions, personal property exemptions, and retirement account exemptions, among others.
Learn More about the 3 main types of bankruptcy
Considering Business Bankruptcy? What You Should Know
If you’re considering business bankruptcy in Washington, there are several things to keep in mind:
- Understand the different types of bankruptcy: As mentioned earlier, there are different types of bankruptcy, including Chapter 7, Chapter 11, and Chapter 13. Each type of bankruptcy has different requirements, advantages, and disadvantages. It’s important to understand which type of bankruptcy is best for your situation.
- Consult with an experienced bankruptcy attorney: Filing for bankruptcy can be a complex and stressful process, so it’s a good idea to consult with an experienced bankruptcy attorney who can guide you through the process and help you make informed decisions.
- Assess your business finances: Before filing for bankruptcy, you should thoroughly assess your business finances and determine whether bankruptcy is the best option. Consider your income, expenses, debts, assets, and liabilities. You may also want to create a detailed budget and a plan for managing your debts.
- Understand the impact on your credit: Filing for bankruptcy can have a significant impact on your credit score and your ability to obtain credit in the future. It’s important to understand the long-term consequences of bankruptcy and develop a plan for rebuilding your credit.
- Consider alternatives to bankruptcy: Bankruptcy should be a last resort, so it’s important to explore alternatives such as negotiating with creditors, restructuring your business, or seeking additional financing.
- Keep accurate records: It’s important to keep accurate records of your finances, including income, expenses, debts, and assets. This information will be important when filing for bankruptcy and working with your attorney.
- Be prepared for the process: The bankruptcy process can be time-consuming and require a lot of paperwork. It’s important to be prepared and stay organized throughout the process.
Are All Debts Discharged in Bankruptcy?
While bankruptcy can provide relief from many types of debts, not all debts are dischargeable in bankruptcy. Here are some examples of debts that are generally not discharged in bankruptcy:
- Taxes: Generally, taxes owed to government agencies, including income taxes, payroll taxes, and sales taxes, are not dischargeable in bankruptcy. However, there are some exceptions, such as if the taxes are more than three years old and certain other conditions are met.
- Student loans: Student loans are generally not dischargeable in bankruptcy unless the debtor can demonstrate that paying the loans would cause an undue hardship.
- Child support and alimony: Debts for child support and alimony are not dischargeable in bankruptcy.
- Debts incurred through fraud or intentional wrongdoing: Debts that were incurred through fraud, embezzlement, or other intentional wrongdoing are generally not dischargeable in bankruptcy.
- Fines and penalties: Debts owed for fines and penalties, such as traffic tickets or criminal restitution, are generally not dischargeable in bankruptcy.
- Debts not listed on the bankruptcy petition: Debts that are not listed on the bankruptcy petition are generally not dischargeable.
How Does Bankruptcy in Washington Affect Your Credit Score and Future Ability to Get a Loan?
Filing for bankruptcy in Washington can have a significant impact on your credit score and your future ability to obtain credit or loans. The exact impact of bankruptcy on your credit score will depend on several factors, including your previous credit history, the type of bankruptcy you file, and how you manage your finances after bankruptcy. In general, a bankruptcy filing can stay on your credit report for up to 10 years, and it can lower your credit score by 100 points or more. This can make it difficult to obtain credit or loans, and you may be required to pay higher interest rates or provide additional collateral to secure a loan.
How Does Bankruptcy in Washington Affect Tax Debt?
Bankruptcy in Washington can have an impact on tax debts, but the specific effects will depend on the type of bankruptcy you file, the type of tax debt you have, and other factors. Here are some general guidelines:
- Chapter 7 bankruptcy: In Chapter 7 bankruptcy, most tax debts are dischargeable, but there are some exceptions. To be discharged, the tax debt must be income tax debt that is more than three years old, and the debtor must have filed a tax return for the debt at least two years before filing for bankruptcy. In addition, the tax debt cannot be associated with fraud or willful tax evasion.
- Chapter 13 bankruptcy: In Chapter 13 bankruptcy, tax debts are generally not dischargeable, but they can be included in a repayment plan. This can help the debtor repay the tax debt over time and avoid further penalties and interest charges.
- Automatic stay: When a debtor files for bankruptcy, an automatic stay goes into effect, which stops most collection actions by creditors, including the IRS. This can give the debtor some breathing room to work out a repayment plan or negotiate with the IRS.
- Tax liens: Bankruptcy may not discharge tax liens, but it can provide some relief by preventing the IRS from enforcing the lien while the bankruptcy is pending.
Will You Lose Your Home or Car in Bankruptcy in Washington?
Whether you will lose your home or car in bankruptcy in Washington depends on several factors, including the type of bankruptcy you file, the equity you have in your home or car, and other circumstances. Here’s an overview of how bankruptcy can affect your home and car:
- Chapter 7 bankruptcy: In Chapter 7 bankruptcy, you may be able to keep your home and car if you are current on your payments and the equity you have in those assets is protected by exemptions. In Washington, there are several exemptions that can protect equity in your home and car. If the equity in your assets exceeds the exemption amount, you may be required to surrender the assets to the bankruptcy trustee, who will sell them to pay your creditors.
- Chapter 13 bankruptcy: In Chapter 13 bankruptcy, you can keep your home and car if you can make your payments under a court-approved repayment plan. The plan will typically allow you to catch up on missed mortgage or car payments over a period of three to five years. The amount you owe on your car or the value of your home will be included in the repayment plan, and you will be required to make monthly payments to the bankruptcy trustee to repay your debts.
- Automatic stay: When you file for bankruptcy, an automatic stay goes into effect, which stops most collection actions by creditors, including foreclosure and repossession. This can give you time to catch up on missed payments or negotiate with your creditors.
Statute of Limitations for Collections in Washington
In Washington state, the statute of limitations for collections is six years for most types of debts. This means that creditors and debt collectors generally have up to six years from the date of the last payment or activity on the account to file a lawsuit to collect the debt. It’s important to note that the statute of limitations can vary depending on the type of debt, so it’s always best to check with a legal professional or the Washington State Attorney General’s Office to determine the specific statute of limitations that applies to your situation. Additionally, making a payment on a debt or acknowledging that the debt is yours can reset the clock on the statute of limitations, so it’s important to be aware of your rights and obligations when dealing with debt collectors.
Cons of Bankruptcy in Washington
Filing for bankruptcy in Washington, or anywhere else, is a serious decision that can have both benefits and drawbacks. Some of the potential cons of filing for bankruptcy in Washington include:
- Damage to your credit score: Filing for bankruptcy can have a significant negative impact on your credit score, making it harder to obtain credit in the future.
- Loss of property: Depending on the type of bankruptcy you file and the exemptions available in Washington, you may be required to sell some of your assets to pay off creditors.
- Public record: Bankruptcy is a matter of public record, which means that it may affect your reputation and can be viewed by potential employers or lenders.
- Difficulty obtaining certain types of jobs: Some employers may be hesitant to hire individuals who have filed for bankruptcy, particularly in jobs that require a high degree of financial responsibility.
- Possible dismissal of certain debts: Not all debts can be discharged in bankruptcy, and some may be dismissed entirely.
Compare the Pros and Cons of Bankruptcy: Pros and Cons of Filing Bankruptcy
Why People Regret Filing For Bankruptcy
People may regret filing for bankruptcy for a variety of reasons, including:
- Damage to credit score: As mentioned earlier, bankruptcy can have a significant negative impact on your credit score, which can make it harder to obtain credit in the future. This may be a particular concern for those who need to obtain credit for a major purchase, such as a home or car, in the years following bankruptcy.
- Loss of assets: Depending on the type of bankruptcy you file, you may be required to sell some of your assets to pay off creditors. This can be particularly difficult for those who have a strong attachment to their possessions or who rely on them for their livelihood.
- Stigma and shame: Bankruptcy is often associated with failure, and some individuals may feel embarrassed or ashamed about their financial situation. This can lead to social isolation and other negative feelings.
- Limited access to credit: Even after bankruptcy, it can be difficult to obtain credit, and the credit that is available may come with high interest rates and fees.
- Incomplete resolution of financial problems: Bankruptcy may not solve all of your financial problems, particularly if you continue to struggle with budgeting and financial management after the bankruptcy is discharged.
What Happens If You Do Not Qualify For Bankruptcy In Washington?
If you do not qualify for bankruptcy in Washington, it means that you are unable to file for bankruptcy under the specific chapter that you are seeking. For example, if you do not pass the means test for Chapter 7 bankruptcy, you may not be eligible to file for Chapter 7 bankruptcy. However, you may still be eligible to file for Chapter 13 bankruptcy.
If you are not eligible for bankruptcy, you may need to consider an alternative option for dealing with your debts, such as debt settlement.
Learn more: What Are Your Options When You Don’t Qualify for Bankruptcy
Why Debt Settlement In Washington Is A Better Option Than Bankruptcy:
Here are some reasons why debt settlement may be a better option than bankruptcy for some people:
- Avoiding the stigma of bankruptcy: Bankruptcy can carry a social stigma, and some people may feel ashamed or embarrassed about having to file for bankruptcy. Debt settlement can provide debt relief without the public record and social stigma associated with bankruptcy.
- Potential for less damage to credit: Debt settlement may not have as long-lasting of an impact as bankruptcy. With debt settlement, a debt settlement firm will negotiate with your creditors to pay off a portion of your debt, which can result in a less negative impact on your credit score.
- Keeping assets: In a Chapter 7 bankruptcy, you may be required to liquidate assets to pay off creditors. Debt settlement can provide debt relief without the loss of assets.
- Lower cost: While both debt settlement and bankruptcy involve costs, debt settlement may be less expensive than bankruptcy, as there are no court fees or attorney fees associated with debt settlement.
Bankruptcy vs. Debt Relief: What’s Right For You and How We May Be Able To Help
CuraDebt – The Alternative You Are Looking For
CuraDebt, a professional debt settlement firm, is a great alternative to bankruptcy. We have a team of debt professionals who are ready to help you better understand and potentially eliminate your debts. Contact us today for your free consultation. 1-877-850-3328