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Edward Gonzalez, P.C.
1660 International Drive, Suite 400
McLean, VA 22102
(703) 883-0016
Telephone: (703) 883-0016
E-mail: info@money-law.com
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Bankruptcy in Virginia
What is bankruptcy?
Virginia bankruptcy law is aimed at giving persons burdened by debt the chance to get a fresh start. The reasons for filing are many--and not necessarily anyone's fault--including job loss, unexpected illness, death of a spouse or breadwinner, debts created by a co-debtor, or excessive credit card charges built up from years of earning less than that person's living expenses.
What types of bankruptcy in Virginia are there?
Individuals have two choices under the bankruptcy in Virginia laws. Under Chapter 7, a liquidation bankruptcy in Virginia, the debtor is excused from most debts in return for giving up his or her property to creditors. However, since the law also allows the debtors to keep necessary property, such as a car or basic personal property (if not too expensive), most debtors, if they have proper planning, will keep most, if not all, they already own.
For debtors with significant property, Chapter 13, a debt readjustment, is an option. Under Chapter 13, the debtor proposes a plan of affordable monthly payments for three to five years paying back some or all of the debt, depending. This choice is useful for persons who are behind in payments but have property they would like to keep and otherwise would lose in Chapter 7.
Will I have to give up all my property?
No. The law will not permit leaving the debtor destitute. The law provides that some property will be held exempt. Most bankruptcy in Virginia cases, when planned, are "no asset" cases, in which the debtors have claimed an exemption in everything they own. Thus, there are no assets to distribute to your creditors.
Will I lose my house?
No, not if properly planned. In a Chapter 7, if there is no equity in the house (value of the house today minus costs of sale and payoff balances on all liens) the trustee (a private attorney appointed by the court to oversee the case) will not bother with attempting to sell your home to pay off your creditors. However, you must make sure that you continue to make your mortgage payments. Even when you are in bankruptcy in Virginia, a lender keeps the right to foreclose on the property if you don't make the monthly payments.
If there is limited equity in the house then you can come up with a lump sum to pay that to the trustee in a Chapter 7 case, a procedure known as "buying the equity." Or you might want to consider a Chapter 13. In a Chapter 13 you will pay the amount of equity in your home to your creditors, plus catch up if you're behind on payments to the mortgage lender, over a period of three to five years.
Can I keep my car?
Yes. Most people owe more on their car than what the car is worth, especially if you bought it new with a small down payment. Thus, because there is no equity in the car, the trustee will not bother to take your car and sell it. If you owe less on your car than it is worth, you can generally protect most of the equity using your exemptions.
Can the lender take my car back?
If you still owe money on the car, you can choose to reaffirm the debt to the secured lender, keep the car, and continue paying under the existing terms; or you can "buy" the car for its present value from the secured creditor in a single payment using your right of redemption. In many states, including Virginia, you can even keep the car and continue to make your regular payments under the terms of the original agreement without having to reaffirm. If you choose, you can surrender the car and be free of any obligation to pay for it.
Will someone from the court come to my house?
No one will come to your home to examine your personal belongings, unless there is a suspicion that you have hidden assets or undervalued what you own. That is very rare and should not worry you.
In what other ways can bankruptcy in Virginia help?
Bankruptcy is also helpful in giving debtors valuable time to work out solutions. Immediately upon filing, the bankruptcy in Virginia law's powerful automatic stay goes into effect halting all enforcement actions such as foreclosures on a home, repossessions of an automobile, garnishments of wages or bank accounts, and harassing phone calls from collectors.
Can I discharge my student loans in bankruptcy in Virginia?
Student loans are no longer dischargeable in any chapter of bankruptcy in Virginia unless you can prove that repaying the loan creates an undue hardship on you or your family.
Proving hardship usually requires showing that you can't provide a minimum standard of living for yourself and your dependents if you have to repay the loan. Some courts will discharge part of the loan on a showing that repaying it all would be a hardship. However, this is an extremely difficult showing to make in court.
A Chapter 13 bankruptcy in Virginia can get the debtor out of default by paying the delinquent amount over three to five years.
Can I keep a credit card out of the bankruptcy in Virginia for use later on?
If you owe money on a credit card at the time you file bankruptcy in Virginia, you must list the card as a debt. However, if you don't owe anything on the card, you don't have to give the credit card company notice of your bankruptcy in Virginia. Note however that they may find out through other means and cancel the card as a precaution.
Most credit card companies will allow you to keep their credit card for use after bankruptcy in Virginia if you agree to reaffirm the balance on the card and enter into a new agreement. The decision is up to the creditor, but most creditors will want to avoid the loss when the debt is discharged.
What happens to my credit after I file bankruptcy in Virginia?
Let's be honest. If you are carrying little debt and have a spotless credit history, then filing bankruptcy in Virginia is foolish. On the other hand, if you are deep in debt, so much so that with your excess income, if any, it would take many years to realistically pay it off, then increasing your net worth by wiping out your debt, and starting to save money and invest, makes perfect sense.
As for your credit history, bankruptcy in Virginia is no more harmful than the financial history that led to the Virginia bankruptcy filing in the first place. Most debtors prior to bankruptcy in Virginia couldn't get new credit from a lender who looked closely at their financial condition anyway.
Bankruptcy at least makes all the debt shown in the negative history unenforceable. You want to make sure that the bankruptcy in Virginia discharge also shows on the credit report so that creditors understand that those old creditors have no legal claim remaining.
The bankruptcy in Virginia can be on your credit report for up to ten years. However, you are not barred from borrowing. The bankruptcy in Virginia is only one factor in determining credit-worthiness. Lenders take a practical approach looking at a person's post-bankruptcy in Virginia ability to re-pay. In fact, for many lenders, persons who have been through bankruptcy in Virginia are a better risk because they are now debt-free, and are determined to get a new start.
Can I buy a house after filing bankruptcy in Virginia?
Yes. Studies show that 18-24 months after a bankruptcy in Virginia discharge, bankruptcy in Virginia debtors can qualify for a loan on the same terms as if they had not filed bankruptcy in Virginia. That means that the lender will be much more interested in your down payment, the stability of your income, and the relationship between the loan payments and your monthly income than your past financial troubles.
How long does a bankruptcy in Virginia take?
Once you file your bankruptcy in Virginia, you will have a creditor's meeting within 30 to 45 days. After the creditor's meeting, you will receive you discharge order in about 90 days in Chapter 7, if there are no objections. Chapter 13 usually takes three to five years, depending on the plan proposed by the debtor, but it could be less if you pay 100% to creditors and can afford the higher payments.
What is a creditor's meeting?
At a creditor's meeting you meet with the trustee, and any creditors who decide to attend, and go over your bankruptcy in Virginia filing under oath. The trustee is going to want to look through your finances and see whether he can get any money for the creditors.
What are some of the common mistakes to avoid?
Often, debtors come to the Virginia bankruptcy lawyer's office after already having made costly mistakes that could easily have been avoided, including:
- Borrowing against a home to pay down credit cards. Now the debtor has turned what, in many cases, was unsecured debt, which could have been wiped out completely, into secured debt that the debtor must pay off or lose the house. Worst yet are predatory loans where the payments are so onerous as to make foreclosure almost a certainty.
- Borrowing against a 401K plan. The debtor takes a loan out against a 401K plan and then finds he can't make the payments. If the debtor defaults, a distribution of the full loan proceeds will be declared for that tax year. The debtor will now have a tax liability (that cannot be discharged) equaling about a third to a half of the loan taken out to pay debt that was probably dischargeable in the first place.
- Moving debt around to take advantage of low-interest credit card offers. If the debtor files bankruptcy in Virginia within a short time after this transfer, lenders left "holding the bag" often move in court to block the discharge claiming fraud for incurring the debt when the debtor knew he would not be able to pay it back.
- Playing the "ostrich." Unable to face his or her financial problems, the debtor avoids getting help. For persons with back tax debts, the delay permits interest on priority taxes (that you must pay off) to build and also gives the IRS time to file a tax lien, again making what may have been a dischargeable tax debt into secured debt the debtor must now pay off.
- Getting help from the "one trick pony." When shopping for help, pay attention to 1) the range of solutions, and 2) the effectiveness of the solutions the debt professional offers. Ask questions.
- Credit counselors. How much of my debt will be completely wiped out? Will I have to pay income taxes for the debt that is wiped out? (You probably will, especially if the creditor reports "cancellation of debt" income for you to the IRS.) How much will I have to pay in total? How many months will it take to be debt free? How much total principal and how much total interest will I pay? Will my interest rates go up?
- Accountants and enrolled agents. For debtors with tax debts, be aware that neither one of them can offer the bankruptcy in Virginia option unless they have a license to practice law. Usually they will offer only an offer in compromise, which may not be the best option for your case, or an installment agreement which is almost no relief at all. Ask: Would this tax debt be dischargeable in bankruptcy in Virginia? Are you making a guarantee that my offer will be approved? What amount will be accepted as an approved offer by the IRS? How long will it take? As for an installment agreement, it's just that: Pay over time while interest and penalty charges continue to grow.
- Attorneys who practice only Chapter 7 bankruptcy in Virginia. This is a bit like going to a doctor who can prescribe only one type of medicine. Your specialist should be able to perform a full diagnosis and then prescribe a range of treatments. Ask: Does the attorney prepare, file and represent debtors in Chapter 13? What are the local Chapter 13 trustee's preferences as to the type of plans he or she will accept? How much of his or her practice is devoted to bankruptcy in Virginia? How long has he or she been practicing this area of the law? For tax problems, does the attorney practice before the IRS? What options does he or she offer?
How much does it cost?
Presently the court filing fee is $209 for Chapter 7 and $194 for Chapter 13. The attorney's fee is regulated by the court. The truth is Virginia bankruptcy attorneys charge within a few hundred dollars of each other --not much of a difference when the total debt discharged runs into the tens of thousands, and even less important when one considers that most low-cost providers make profit by doing cases in volume and spending less time explaining issues to the client. At the consultation, our office provides an estimate before the work begins.
What do I need to do?
Call for an appointment. Worksheets to evaluate your situation are available from this website. Fill them out, ring them to the initial appointment, along with a paycheck stub, IRS correspondence (if you have tax problems) and any other documents you have related to your financial situation. By the time we finish you will know exactly where you stand, what your options are, and what needs to be done to move ahead.
Bankruptcy is not a cure-all, but it is a powerful tool to deal with a number of legal problems. It certainly is an effective way to get you back on your feet.
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NOTE:
The answers to the FAQs are simplifications intended for a lay person. The facts in your situation may be different and lead to a different outcome. Consult a professional for advice before proceeding.
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Contact Edward Gonzalez:
Edward Gonzalez, Professional Corporation
VA Office
1660 International Drive, Suite 400
McLean, VA 22102
(703) 883-0016
MD Office
1300 Spring Street, Suite 500
Silver Spring, Maryland 20910
Phone: 301-772-1002
DC Office
2405 Eye Street, NW, Suite 1A
Washington, DC 20037
(Foggy Bottom metro stop)
(202) 822-4970
E-mail: info@money-law.com
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