A Clean Start Isn't So Clean Anymore in Washington

A family member has an illness that requires a lengthy hospital stay. They recover, but with whopping medical bills and meager health insurance, your chances of financial recuperation look slim.

This is a situation where bankruptcy and other debt relief options may need to be considered, with input from an experienced bankruptcy lawyer.

Means Test for Filing Chapter 7 Bankruptcy

If you make more than the median income in Washington state, you will find it hard to file a Chapter 7 due to the Chapter 7 means test.

Chapter 7 bankruptcy wipes out all the covered debts right away. If your household earnings are above average, and you can pay at least $100 after basic expenses, you now have to file under Chapter 13, which Noel Shillito, a partner with law firm Shillito & Giske in Tacoma, refers to as a “mom-and-pop payback plan.”

You’ll also be required to take a one-hour credit-counseling course.

Before new bankruptcy laws restricting personal and business bankruptcies took effect October 17, 2005, there was a mad rush of filings across the country. But the effects were not as extreme as predicted. In part, this was because so many people on the verge of bankruptcy rushed to beat the buzzer.

“The changes in fact have turned out to not be as draconian as we thought they might be when the law was being modified,” remarked bankruptcy lawyer Sheena Aebig. “[Bankruptcy judges have some leeway] to ameliorate some of the potentially harsher consumer provisions.”

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Using Chapter 13 vs. Chapter 7

“Most Chapter 13s don’t pay back everything,” says Shillito. “They pay back what you can afford to pay back” of unsecured debts, such as credit-card balances, medical bills and signature loans.

“I might be in a plan for five years paying $400 a month, $600 a month. That’s the money left over after I’ve paid my basic living costs that I can pay into the plan — what we call our disposable income. Generally speaking, when you file a Chapter 13, you continue making your mortgage payments and your car payments.”

Get Experienced Legal Help

Regardless of which version of bankruptcy a person uses, a lot of paperwork is required under the law. For legal guidance through the process, visit the Super Lawyers directory to find an experienced bankruptcy lawyer.