The prospect of filing for bankruptcy can be daunting, primarily because of the fear of losing personal assets — especially your home. However, many U.S. states have crafted specific exemptions designed to protect the essentials, allowing people to maintain a semblance of normalcy and security as they work through their financial recovery.
Bankruptcy often carries a stigma of financial defeat, but in reality, it is a legal tool designed to provide relief and a pathway to a fresh start for those overwhelmed by debt.
At OlsenDaines, we’re all too familiar with the complexities of bankruptcy law and are dedicated to navigating our clients through this challenging process. In this guide, we’ll discuss both Chapter 7 and Chapter 13 bankruptcy filings and strategies that protect your assets while relieving your financial burdens.
Which Assets Are Protected in Bankruptcy?
Chapter 7 bankruptcy provides a way to discharge most of your unsecured debts, and it also allows you to keep key assets. These exemptions under Oregon & Washington laws play a critical role in allowing individuals to reset their financial lives without losing everything they have worked hard to acquire:
- Homestead Exemption: One of the most significant protections, this exemption allows individuals to protect substantial equity in their homes. States the exemption amount periodically, but it’s designed to keep you in your home without the threat of forced sale under bankruptcy proceedings.
- Vehicle Exemption: Essential for personal transportation to and from work, this exemption protects a portion of your vehicle’s equity.
- Retirement and Pension Accounts: These are fully protected under both state and federal laws.
- Personal Property: This category covers a broad array of items, from household goods and furnishings to personal clothing and some types of jewelry, each up to a specified value.
Unlike Chapter 7, Chapter 13 bankruptcy doesn’t involve liquidating your assets but rather restructuring your debts. Under Chapter 13:
- You keep all your assets while making more manageable monthly payments toward your debt based on a court-approved repayment plan.
- You consolidate your debts and possibly reduce interest rates or eliminate certain penalties.
- You can halt the foreclosure process and allow you to catch up on missed mortgage payments through your repayment plan.
Can a Trust Protect Assets in Bankruptcy?
Utilizing trusts in financial planning can sometimes protect assets from bankruptcy, but the level of protection depends on the type of trust.
Revocable trusts allow you to maintain control over your assets and amend or revoke the trust at any time. Because you retain control, these assets are generally still accessible to creditors during bankruptcy proceedings. Irrevocable trusts require you to relinquish control over the assets you transfer into the trust. Because you no longer control these assets, they are usually out of reach from creditors.
Yet, it’s important to establish such trusts long before any financial trouble arises as recent transfers can be scrutinized and potentially undone by bankruptcy courts.
It’s important to note that the protective strength of a trust can be undermined if it appears to be set up explicitly to avoid creditors. Trusts created shortly before filing for bankruptcy, or those that transfer substantial assets, may be scrutinized or even dissolved under fraudulent transfer laws. Honest and timely planning is key to utilizing trusts effectively for asset protection.
Can I File Chapter 7 and Keep My House?
Filing a Chapter 7 bankruptcy can temporarily stop the sale of your home (because of the “automatic stay”) but that does not mean it will ultimately save your home from foreclosure.
Foreclosure laws differ from state to state and they are very complicated. If you are facing foreclosure, it’s important that you understand at least some of the basics, including the difference between a judicial foreclosure and a nonjudicial foreclosure, and:
- How much time you have to respond to notices.
- What your rights are and what laws protect you in foreclosure.
- What happens afterwards (for example, whether you’ll be liable for a deficiency judgment).
While a Chapter 7 will give you the benefit of the automatic stay, bringing the foreclosure to a halt until discharge or the stay is lifted, unlike a Chapter 13 bankruptcy, it will not allow you to catch up on missed mortgage payments. That’s because Chapter 7 is a liquidation bankruptcy designed to discharge (wipe out) unsecured personal debts (e.g., credit card debt and medical bills).
Chapter 7 will erase personal liability on the note, but it won’t eliminate the lien. This means that if you are behind in your mortgage payments, your lender can foreclose on your property. It also means that the lender can continue a foreclosure that was delayed by your bankruptcy once you are discharged or a relief from the automatic stay (“relief from stay”) is granted. The same applies to other liens on the property, like HOA or condominium liens. No deficiency.
Whether a Chapter 7 is the right option for you is something that you should discuss with a bankruptcy attorney. Here at OlsenDaines, our bankruptcy attorneys know the options and care about the outcome. That’s why OlsenDaines offers free consultations, so we can sit down with you and help you decide what is the best approach for you and your family.
Can an HOA Foreclose on a Home After Bankruptcy?
An HOA may be able to foreclose on your property depending on your specific situation, even if you are granted bankruptcy. Here are some instances where an HOA can foreclose on your property after bankruptcy:
- Your foreclosure has already taken place. Bankruptcy cannot undo a foreclosure that has already taken place. So, if the HOA has already foreclosed on your property and the home is no longer in your name, the outcome of your bankruptcy petition will not be able to reverse the process.
- The HOA filed a lien against your property. Once an HOA files a lien against your property, they may begin the foreclosure process. Though you are granted an “automatic stay” while filing for bankruptcy – meaning that the HOA cannot move forward with the foreclosure process during your petition – they may be able to resume the process once you are granted bankruptcy. Bankruptcy cannot get rid of a lien filed against you even if your debts are discharged, so your property may still be foreclosed on.
- You accrue more fees after bankruptcy. Bankruptcy will only discharge debts accrued prior to your petition, so you will be responsible for any fees due after you are granted bankruptcy. This is true even if you are forfeiting the property; you will have to pay any fees that accumulate between the time you are granted bankruptcy and the sale of your home. To avoid accruing more fees and debt, it is best to wait until the property is sold before filing for bankruptcy if you are planning to surrender the home.
Can I Discharge My HOA Debt Through Bankruptcy?
Your specific circumstances will impact whether or not you can dismiss HOA debt by filing for bankruptcy. To determine if your HOA fees can be discharged, begin by asking yourself these questions:
- Which chapter of bankruptcy am I filing for? The two most common chapters of bankruptcy are Chapter 7 and Chapter 13. While Chapter 7 bankruptcy is intended for lower-income individuals with fewer assets, Chapter 13 is geared toward those with more assets and disposable income. Knowing which chapter you qualify for will give you a better understanding of what your debt relief options are.
- Do I plan to keep the property? With both chapters of bankruptcy, you should be able to wipe out past HOA dues by forfeiting the property. However, if you plan to keep your condo or home, you will still be responsible for paying your HOA debts.
With Chapter 7 bankruptcy, you should treat the HOA like a bank holding a mortgage and plan to make payments both before and after you file. It’s important to know that the HOA could still foreclose on your home if they have a lien on your property, even if your debts are discharged.
Meanwhile, if you are filing for Chapter 13 bankruptcy and plan to keep the property, your repayment options may look a little different. Since this chapter allows you to reconfigure your debts into a payment plan, your past HOA fees should be included in your monthly installment.
Your Oregon & Washington Bankruptcy Experts
Here at OlsenDaines, we understand how stressful and complicated it can be to file for bankruptcy. That is why our experienced attorneys are always here to help. We strive to make the process as fast and easy as possible while ensuring that you are getting the most out of your petition.
With over 46 years of experience serving people throughout Oregon & Washington, we are very familiar with local bankruptcy laws and are prepared to help you regain control over your finances so you can truly start fresh.
If you are looking into bankruptcy and would like to speak with an expert, contact us today to set up a free legal consultation!
Protecting Your Assets During Bankruptcy in Portland OR and Salem OR
And all surrounding areas