Bankruptcy gives a fresh start to honest debtors. That's what the Supreme Court said more than seventy years ago. A fresh start to honest debtors and a clear field for the future. 

There are about as many bankruptcies in America each year as there are divorces--about a million.  This year there will be ten thousand in Northern Virginia.

Recently the biggest cause of bankruptcy in Northern Virginia is people getting caught in the real estate crisis, and people losing their jobs in the recession. Historically, most people filed bankruptcy because of medical problems, or job loss.  Many people because of a breakup of a marriage or loss of a spouse.  Some people just charged too much when things looked good.

You have two main choices under the bankruptcy law--Chapter 13 and Chapter 7.

Chapter 13 is a debt adjustment. The court works out a payment plan you can afford.  Chapter 13 may be required for higher income people.  The new bankruptcy law was promoted as an effort to force more people to file Chapter 13.  Mostly it hasn't.  Bankruptcy lawyers have been pretty successful at working with or working around the requirements of the new law.

Under Chapter 7, most unsecured debts are discharged--they're gone. (You usually cannot be discharged from taxes, student loans, or child support.  You also cannot be discharged from credit cards you agreed to pay as part of your divorce.)

Our law firm thinks that Chapter 7 is better for most people.  It's over quicker and gets you back to good credit much sooner.  We try everything we can to qualify people for Chapter 7 if they need Chapter 7.

Chapter 13 is good to stop the foreclosure on your house and give you time to catch up.  (For more about foreclosures, link to www.stopforeclosurevirginia.net.)  For some people whose house has lost a lot of value, we can use Chapter 13 to strip off your second mortgage.  Barak Obama has also promised to change the law, so we can use Chapter 13 to reduce the payments on your first mortgage.  That would help a lot of people, but it doesn't look like we have the votes to make that change.

Chapter 13 can also be used creatively to fix a variety of unusual problems. (Some of which I can't put in writing). If you agreed in your divorce to pay certain bills--I'm not talking about support here, but if your property settlement was areally a "debt" settlement--Chapter 13 can get rid of those.

(You hear in the news about Chapter 11. Chapter 11 is for business--usually big business. Chapter 11 is a plan to pay some debts, wipe out others, and keep the business going.  People who owe a million dollars on their house may be required to file Chapter 11--we're starting to see some of that now..)

The new bankruptcy law sets a new test for eligibility to file Chapter 7 bankruptcy.  Instead of looking at your budget to see if you can afford to pay, the court now looks at an average budget to see if you should be able to afford to pay.   

For the first two years under the new law, this average budget took into account the high cost of living in high cost of living areas like Northern Virginia.  In January 2008 most of the cost of living calculations got thrown out.  Fortunately, we now have three years experience with the new law, and we're developing ways to present your case that should still get most people who need bankruptcy approved.  

Actually, it's terrible.  The new law makes it almost impossible to get rid of debts you promised to pay in a divorce or separation.  The new law is much tougher--it was already tough--on people who owe old taxes.  The new law now says you cannot get rid of non-government student loans, which will open up a whole new field for bogus schools offering bogus student loans.

For everybody, the paperwork is a lot harder.  You'll need to find six months of pay stubs and last year's tax returns.  You'll need to pay for and attend a credit counseling briefing and a budget class.  (You can do these classes on the internet; we suggest Hummingbird at www.hbcce.org.)  You have to come to your hearing with your drivers license or other picture ID and your social security card.   You have to show the court your bank statements.   The purpose of these paperwork requirements to to throw you out of bankruptcy, so your creditors can keep chasing you.

The rigid paperwork means rigid deadlines.  When you meet with me, we'll work out a schedule of paperwork and deadlines.  It will be much harder if those deadlines slip.  If you get behind, your work will have to be redone and that will cause a start over fee.  For some people, keeping to the paperwork deadlines will be one of the toughest parts of the new law.  Missing an appointment can easily mean losing your eligibility. 

Under the new law, you are automatically eligible to wipe out your debts with a Chapter 7 bankruptcy if you are below the average income for your family size in Virginia.  Effective March 2009, the averages for Virginia are:

If your income, based on the last six months, is below those numbers, you have automatic eligibility to wipe out your debts with Chapter 7.   If you are over those numbers by a little, you can still usually get approved.  Over by a lot may mean you are forced into a Chapter 13 payment plan, unless we can show an unusual factor, like an on-going medical situation.  With three years of new law experience, we now know of a lot of ways to show those unusual factors.  (There's a real reason why you are in trouble, after all.)

You'll also notice that these numbers are not too hard on single people and two person families.  They get a whole lot harder as the family size goes up.  So a family of six is allowed double what a single person gets;  and while it may not be six times as expensive to have five kids as it is to have none, it's a lot more than twice as expensive.  I'm angry about the unfairness of that, and I do everything I can do to try to help families with lots of kids.

Most people keep everything. Virginia law allows you to keep your furniture, clothes, and car up to certain limits of value. The law also gives you the right to protect other assets: bank accounts, expensive cars-- again up to certain limits. 

The Virginia limit on paid for cars is quite low: $2,000.00; and often requires some planning to work around. ( I'm also trying to get the Virginia legislature to change it.)

Single people who still have some equity often require a Chapter 13 to keep their house--Virginia is tied for worst of the fifty states in the protection for single people in bankruptcy, allowing equity of $5,000.00.  (It was set at $2,0000 for a hundred years, and raised about 30 years ago.)  Married people can more often keep their house with equity in Chapter 7.  (If falling real estate values have wiped out the equity in your house, then you don't need to worry about that.)

Especially under the new bankruptcy law, it's smart to see a lawyer right away if you are in financial difficulties and own real estate in Virginia.  We can usually put together a plan that works if you come to see us early enough.

If you have something valuable that the court can sell and get more than about $5,000.00 for, the court will sell it to help pay off your debts. About one person out of a hundred has the bankruptcy court sell something they own. Here's what each person is allowed to keep under Virginia law from the court.

• Your clothes-- worth up to $1000.00 at thrift store prices.
• Your household goods-- up to $5000.00 at thrift store prices.
• Your car-- worth up to $2000.00 more than you owe on it.
• Cash-- or whatever else you want, up to $5000.00
• Your wedding or engagement ring--regardless of what it's worth
• Your 401(k), IRA or retirement--regardless of how much (I did a guy ten years ago who had $950,000 in his 401(k).)

Recently real estate values have been falling here, which is a help in some ways.  Virginia allows single people to file Chapter 7 and keep your house only if you have very little equity.   Virginia does provide much better protection for married couples who own a house.   The sooner you come to see us the more strategies we can try.

There is no truth to the urban legend that you have to go for seven years with bad credit. Bankruptcy will be on your credit report for 10 years, but even so you can have good credit in just three years.

We make sure you know to do the things you need to do to get good credit in three years.   And we follow up with the credit bureaus after your bankruptcy is over to make sure your credit reports are right.

If necessary, we sue the creditor or credit bureaus to get your credit report right after bankruptcy.  After-bankruptcy credit report law is a new area of the law.  We're one of the pioneers.

For the first two years after bankruptcy, you will have terrible credit. If you have to get a car, please try to pay cash for a late 1990's car rather than buy from a car dealer.  Every month that you put off buying a car, you save yourself $300 on what the cost of financing your next car will be.  After two years of rebuilding credit, you can get a car at around 13%; after three years around 8%.  That 8% will save you $10,000 in finance costs compared to what you would pay if you go out and get a car right after the bankruptcy.  

You can get a $300 limit credit card right away and start rebuilding your credit.

With three years of rebuilding credit, you will be able to finance a house at a good mortgage rate (if you are making enough money).  Two years if you have veterans' eligibility.

With a year rebuilding credit, you will start getting approved for $1000 and higher credit cards again. (You should probably get three or four credit cards, use each one for one or two tanks of gas a month.)

Ninety percent of your credit score is based on what you've done the last three years.  So once you have three good years after bankruptcy, you'll have a good credit score.

Filing for Chapter 7 Bankruptcy is better for your credit than getting help from credit counseling. Bankruptcy is better for your credit than sending late or partial payments.

 I've done bankruptcies for hundreds of people who have security clearances. Some of them were told by their security people that they would lose their clearance unless they filed bankruptcy.  Having trouble paying your debts can be automatic grounds for losing your clearance--because the government does not want you desperate for money and selling things that don't belong to you.

I have known only five people who lost their clearance after filing bankruptcy.  Two of those had been ignoring their bills and dragging around bad credit for years without doing anything about it.  At their review, the government said they were just too stupid to be trusted.  (Bankruptcy by itself cannot be used to deny a security clearance; but it can be used against you in  combination with other problems.)  Of the other three, one worked at perhaps the most secure location in government.  The other two I can't explain.

I have seen several people who did not have clearances and who were denied interim clearances when they applied because of the bankruptcy.  I fought one of those to the Fourth Circuit, but lost.

As a general rule, people who already have a clearance and who aren't in trouble for anything else do not lose their clearances because of bankruptcy.   People who are applying for a clearance for the first time should do everything possible to keep everything current until the clearance is approved. 

In some parts of government and certain jobs, filing a Chapter 13--and paying back some of your debts--is better than filing a Chapter 7. 

Where is the Bankruptcy Court?

 The Bankruptcy Court in Alexandria serves all of Northern Virginia. The Bankruptcy court is a Federal Court.  The Federal Court System divides Virginia into Eastern and Western.  The Eastern District then has divisions, Alexandria, Richmond, Newport News and Norfolk. The Alexandria Division serves, Alexandria, Arlington Falls Church, Fairfax, Fairfax City, Loudoun, Prince William, Manassas and Manassas Park, Fauquier, and Stafford.

The bankruptcy trustee hearings take place at 115 S. Union Street, Alexandria.  That's an office building, with a Birkenstock shoe store in front and a Federal annex in the back.  The bankruptcy judge is a few blocks away, at 200 S Washington Street.  That's an old Federal Courthouse.   Most individual bankruptcy cases are handled at the trustee hearings and never get in front of the actual judge.

Filing bankruptcy does not force you to close your bank account.  (Many credit unions will fire you as a customer.)  If your credit is already so bad you can't open an account, try TD Bank, a new bank in Northern Virginia.  Another option is Wood Forest Bank, in some of the larger Walmarts, including the one on Liberia Avenue in Manassas..

Filing for Bankruptcy will not hurt your immigration status. You can still get a green card-- you can still become a citizen, exactly the same as before.

Filing for Chapter 7 Bankruptcy will not stop your tax refunds.

Filing Chapter 7 Bankruptcy will not involve your employer.

Filing for Chapter 7 Bankruptcy does not mean you will be garnished-- it makes it illegal for your credit cards and medical bills to garnish you.

Sometimes doing nothing will work.  For elderly people with nothing but social security, simply telling creditors to call your lawyer may be all you need to do.

(If I can work out a plan to fix your debt situation without a lawyer, there's no charge.  But I do make you listen to my favorite lawyer joke.)

If you want to try to work out lower payments with your creditors, I used to recommend Consumer Crediting Counseling Service at 1-800-747-4222.   They used to have offices around Northern Virginia where you could meet somebody in person and go over your choices. 

Now, they have been taken over by Money Management International at the same phone number, but now over the phone and on the internet.

I met a representative form Clear Point, when we did a little panel for the Northern Virginia Better Business Bureau.  She seemed very nice.  Their number is 877-422-9040. 

The credit card companies really sold Congress on how these counseling services were better than bankruptcy.  After the new law passed, the best ones closed down.  I guess I shouldn't be surprised at that, but I am.

I see one or two people every few months who should not set foot anywhere the bankruptcy court.  The reasons for that are not things I want to put in writing, but if that applies to you, I'll tell you so.

We offer payment plans. Most clients take four months.  Occasionally there's a reason we can't wait, if you put off seeing me for too long.

How much will it cost?  That varies with the facts of your case.  If my job gets harder, your price does go up.  Under the new law, Chapter 7, with filing fees, costs and legal fees, you can expect to pay a little over $2,000.00.  If your situation is complicated, it can cost close to $3000.00. 

Ordinary Chapter 13's are $3000.00; Chapter 13's where we strip off your 2nd mortgage are $4500.00.