Estate Planning Services

Rights You Receive on Your 18th Birthday

Age 18 is referred to as the "age of majority" in the United States and much of the rest of the world. On your 18th birthday you receive — by operation of law — the right to: 1. Open a bank account under your own name and Social Security number only 2. Obtain a credit card 3. Vote 4. Purchase real estate or stock in your own name only 5. Open a 401(k), IRA, or Roth IRA 6. Sign contracts enforceable against you 7. Sign a Revocable Living Trust 8. Sign Powers of Attorney for Finances & Health 9. Sign Living Wills 10. Sign Transfer on Death Deeds 11. Sign a Last Will & Testament 12. Marry without parental consent 13. File a tax return in your own name and Social Security number That is a lot of rights and responsibilities to receive all in one day.

What Christopher Has Seen

Practicing in the areas of Bankruptcy and Estate Planning, Christopher has seen young people who get into trouble with debt early in their lives — trouble that could have been avoided through education about finances and credit. He has seen young people who get into trouble with the IRS and the Washington State Department of Revenue because they did not understand the Business & Occupation Tax or deductions. He has seen young people who do not know how to balance a checkbook and do not look at their bank statements. He has seen young people who do not vote. He has seen young people who do not file tax returns — or who file them improperly and do not keep records. He has seen young people who do not begin modestly saving and investing for retirement. He has seen young people who do not know that they have the right to a Separate Property Revocable Living Trust — to keep property separate during marriage (and after divorce, if applicable) — and to receive separate gifts and inheritance during marriage. He has seen young people who do not know that because their Trust becomes irrevocable if they die, their children are protected from disinheritance if a surviving spouse remarries. He has seen young people who do not know that they have the right to name health care agents who have the right to access — or those who do not have the right to access — their health care information and talk to their health care providers. Universities often require this, which is the impetus for many young people's parents contacting Christopher. He has seen young people who do not know that they have the right to name an agent to sign checks and contracts for them if they are not able to do so themselves — thereby negating the need for a Guardianship Proceeding. Understanding this right also gives young people a better understanding of how to act as their parents' agent and care for them when the time comes. He has seen young people who do not know that they have the right to authorize a health care agent to make end-of-life decisions — and that their parents have the same right, and that they may one day be called upon to carry out those wishes. He has seen young people who do not know that they have the right to avoid probate on any real estate in Washington with a Transfer on Death Deed — with a step-up in cost basis to the date-of-death value — and that their parents have the same right, which can save thousands of dollars, six months or more of estate administration time, and avoid public disclosure to the Court. He has seen young people who do not know that a Will requires a Court and the associated cost, time, and public disclosure — or that Probate does not require a Will. He has seen young people who know they can marry, but do not understand the value of discussing financial issues in advance, or the value of being organized to reduce anxiety and increase a sense of control. He has seen young people who do not know they can keep gifts and inheritance separate during marriage — but that if commingling with community property occurs, that separate character may be lost.

Powers of Attorney and Advance Directives

Many colleges and universities require students to submit powers of attorney for finances and health so that it is clear what the student's wishes are regarding communication of private healthcare, financial, and other private information. This is an important step into adulthood. Minors have more limited rights to privacy because parents make decisions for them and need to have all of the information to do so. An 18-year-old has the right to create powers of attorney for finances and health, a living will, and an advance directive for mental and behavioral health issues including addiction and inpatient treatment. The power of attorney for health includes an organ donation election. Keeping electronic emergency contacts in a young person's phone and on paper behind their driver's license helps ensure that family is notified right away of any issues. In a broader sense, a young person is explicitly trusting people in writing. A young person who agrees to be there for parents and other family members — and who is confident that they will be there in return — should be a little less anxious and a little more peaceful going out into the world.

Voting

An 18-year-old also has the right to vote and should register right away. Washington has voting by mail, so as long as a person keeps voting, ballots keep being mailed. It is an easy system that gives private voting access in people's homes away from polling places. In Christopher's view, voter registration should be done automatically for everyone who obtains a driver's license or photo ID from the State.

Passport

A passport is proof of U.S. citizenship. A passport card can also be obtained. An 18-year-old obtaining a passport is especially helpful for racial and ethnic minorities — being able to easily prove citizenship can be useful even if foreign travel is not planned. Christopher believes that traveling to Canada and Mexico is helpful for Americans to know and appreciate their neighbors. You do not have to go far to broaden your perspective. Consider TSA PreCheck if you do plan to travel.

Separate Property Trust Accounts

A separate property trust clearly labels property held before marriage and becomes irrevocable when a person dies. That can be empowering, especially for young women. A young woman with her own money — money that remains hers even if she marries — is empowered. The checking, savings, money market, or brokerage accounts in the young person's name as Trustee of their trust pass to their adult children at death, not to a surviving spouse. Parents can give money to their adult daughter, giving her a freedom that cannot be taken by a spouse. Having separate property accounts set up early can be useful when dating and discussing engagement — the other person's reaction is telling. This is also a hedge against divorce. The Court has jurisdiction over community property, not separate property. Once the Court finds that property is separate, the Divorce Decree simply confirms that separateness. If separate property trust accounts are already set up when a spouse dies, the surviving spouse does not have to create them. They already exist, making a difficult time a bit easier. Adult children can also use trust account funds to care for an elderly parent under a power of attorney for finances. Funds in trusts avoid probate regardless of amount. Christopher believes that exercising these hard-won rights is vitally important — especially for women and racial and ethnic minorities. America cannot be fully understood without understanding the history of who was excluded from these rights and why. That history should inform the choices of young people, especially those who are descendants of those who did not have these options.

Beneficiary Designations Naming the Trust

If a young person opens a Roth IRA and names their separate property trust as beneficiary — and names their trust as beneficiary of their 401(k) when they start working — they are well ahead of most people. Their retired self will thank them. By naming a beneficiary while single, a young person also learns that such a designation is not valid after marriage unless a written waiver or consent form is delivered to the account holder. A waiver by a spouse is irrevocable at death, which means an adult child beneficiary has strong protection if the waiver is already on file. If not, a surviving spouse can object to the distribution and the dispute could end up in Court.

Credit, Credit Reports, and Credit Freezes

Having one credit card with the payment deducted in full so a balance is never carried, checking free credit reports annually (or every four months at a different bureau), and placing a credit freeze will get a young person started out right. A credit freeze protects against identity theft during life and protects against fraudulent credit being issued after death. Building good credit and correcting errors helps with employment and home and vehicle purchases at a minimum.

Repelling Golddiggers

A young person who demonstrates legal and financial sophistication tends to discourage people who want to gain from the relationship. Abusive or controlling people also tend to be discouraged. This is what most parents want for their young adult child. The issue of advertising your ability to protect yourself also becomes important if one spouse dies and the surviving spouse remarries. A grieving widow or widower is vulnerable. If a surviving spouse speaks openly about a separate trust for the benefit of adult children, someone who wishes to marry for money will move on.

Tax Returns and Records

An 18-year-old has their first tax return to file. If a young person gets in the habit of keeping paper and electronic records and storing usernames and passwords safely, that will serve them well for life. Identity theft is an important issue, as are malware and ransomware. Protecting your physical self, your tangible property and documents, and your electronic property and documents is of lifelong importance.

Social Media

Young people need to be aware that what is a joke or fun in one context can be very serious and dangerous in another. Young people should never send naked pictures of themselves to anyone. No videos of drinking, drugs, sex, or crimes should be made. No racist, sexist, hateful, or violent language of any kind should ever be posted. Nothing disparaging should be said about any religion. Federal crimes are serious. With legalized marijuana in many states including Washington, it may be tempting to try it. If you have or wish to have any connection to the Federal Government beyond being a citizen, you should think carefully before you act.

Guns

Being safe in one's home and person is, for many people, equated with owning a firearm. Christopher believes it is important for this issue to be discussed within the context of mental health generally and in the context of different mental states specifically. A person who has a family history of depression and suicide should not have access to guns. It would be helpful if it were a cultural norm for people to make an honest assessment about whether owning a gun actually protects their safety — for some people, it does not. Guns and children, and guns and divorce, do not mix well. Strong precautions must be taken to protect children from accessing firearms. Guns should routinely be removed from homes during divorces. Ammunition should be stored locked and separately, and trigger locks should be used. There are gun trusts for estate planning — particularly designed for sound- and flash-suppressed weapons that cannot legally be possessed by felons, minors, or people in certain states. If you choose to have guns, be clear about their purpose in your life and keep them safe.

Caring for Aging Parents

A young person with their own estate plan has a better understanding of how to care for an aging parent. If all siblings have estate plans of their own, they share a common basis of knowledge and are less likely to argue.

Administering Parents' Estates With Reduced Conflict

Disputes are common in estate administration. By talking about these issues early in life, many transfers can be made during life instead of waiting for death. Siblings with a common understanding of what is required to administer an estate are likely to do so more efficiently and more pleasantly.

Passing on Good Habits to Their Own Children

Young people who create an estate plan early are more likely to pass on the habit of doing so to their own young adult children. In that way, multiple generations of the family benefit.

Conclusion

Because Christopher has seen all of these things, he feels an obligation to help reduce the difficulties that can occur as a result. Young people who have some financial and legal sophistication early in their lives are less likely to get into debt problems, more likely to save for retirement, more likely to vote, more likely to correctly file tax returns, more likely to do their own estate planning, more likely to take better care of their parents when needed and to administer their estate without disputes — and more likely to encourage their own children to obtain the same kind of financial and legal sophistication that benefitted them. Peace and harmony through generations of families can be promoted by having a common basis of knowledge and values. Communicating with each other about these issues is intended to promote strength and resilience in families — so that if a family member is in a coma or dies, the rest of the family does not argue and fight, but instead experiences increased gratitude, compassion, and kindness. All of us face sickness and death. It is how we respond — individually and collectively — that defines who we are. Is who we are who we want to be? If not, there are things we can do together to learn and grow.

Unmarried Parties Buying a Home Together

When unmarried people buy a home together, several issues tend to arise. 1. How to Take Title at Purchase Most married people take title as Joint Tenants with Right of Survivorship so that if one spouse dies, the surviving spouse owns the home. Unmarried people can do the same, or they can hold title in the default way for unmarried people — Tenants in Common — meaning each can pass their undivided one-half interest to their heirs (who may or may not be their partner). Unmarried people may also choose a percentage other than 50/50, such as 60/40, to account for unequal contributions to the mortgage payment and/or down payment. 2. Changing Title After Purchase Parties can record a Quitclaim Deed to themselves, their Trusts, their LLCs, or others after purchase. Typically, no Real Estate Excise Tax is due because no payments are being made. WARNING: Changes in title do not affect Promissory Note obligations — that requires a refinance or sale. This can create serious risk if the relationship ends and one party signs and records a Quitclaim Deed to the other. If both parties signed the Promissory Note, a default occurring years in the future will appear on the credit reports of both parties — even if one party hasn't owned the property for a decade or more. 3. How to Address Unequal Down Payment Contributions A Promissory Note and Deed of Trust can be signed in favor of the party who contributes more to the down payment. Interest is permitted but not required. The balance must be paid if the property is refinanced or sold, after which net proceeds are divided according to the percentage ownership of those on title. 4. Agreements Regarding the Purchase Agreements regarding property purchases are subordinate to other aspects of the transaction — how title is taken, promissory notes, and deeds of trust. Such agreements also typically include language regarding rights if one party passes away or if the relationship ends. Because of this, Christopher has found that by far the best and most complete way to address these issues is within the context of estate planning for both parties. 5. Estate Planning & Home Buying Buying a home and estate planning go hand in glove and are frequently paired. A Transfer on Death Deed for the home is part of the estate plan. Powers of Attorney for Health and Living Wills are especially important for unmarried parties, who otherwise may not be able to speak with doctors about each other's care. Conclusion By doing an estate plan for each party and understanding what public records cannot be altered by private agreements, the parties can get a much richer understanding of what they are doing — and hopefully avoid pitfalls and disputes.

Property & Debt Classifications in Washington State

The chart below assists clients in visualizing the different ways property and debt may be held in Washington State, and what differences result based upon these distinctions. Property in Washington State may be held by the marital community or by each spouse separately, or a combination of the two. Single people may hold property as joint tenants with right of survivorship or otherwise jointly own assets, but there is no presumption of community property that applies no matter how property is titled — as there is with community property. In a Trust or Not in a Trust Property may be held in a Community Property Revocable Living Trust or a Separate Property Revocable Living Trust. Doing so makes the property a non-probate asset, meaning that a Personal Representative does not need to be appointed by the Court to transfer the property — the Successor Trustee may do so. Holding property in a Separate Trust as a married person with a prenuptial or postnuptial agreement clearly identifies the property as separate and sets out the limits of contributions to separate property while married. The purpose of doing so is to rebut the presumption of community property clearly and in writing, to protect against the other spouse's claims as well as the separate creditors of the other spouse. Burdened by a Lien or Not Property itself has potential liability for debts either in addition to or instead of the potential personal liability of the individual(s) owning the property. This liability is referred to as a security interest — the right to repossess or foreclose for default on payments. Personal bankruptcy discharges personal liability, but does not affect liens except under limited circumstances in Chapter 13 (see Lien Stripping & Cram Down in this section). That is why a creditor may take back a car or boat, but may not sue you for the deficiency if you have obtained a bankruptcy discharge. Dischargeable versus Non-Dischargeable Knowing whether a debt may be discharged in bankruptcy is important in determining negotiating leverage and planning which debts to pay first. Always pay non-dischargeable debt first. For example, student loans are not dischargeable in bankruptcy. So, paying credit card debt while not paying student loans when eligible for a Chapter 7 discharge makes no financial sense.

Refiling & Waiting Periods — How Many Times Can You File?

There are no legal limits on the number of times you can file for bankruptcy. However, strict waiting periods are imposed before you can receive another discharge. These periods are calculated from the filing date of the previous case — not the discharge date. Waiting Periods by Chapter Combination • Chapter 7 after Chapter 7 — 8 years between filings. • Chapter 7 after Chapter 13 — 6 years, unless you paid 100% of allowed unsecured claims in the prior Chapter 13, or paid at least 70% of allowed unsecured claims under a good-faith plan that represented your best effort. • Chapter 13 after Chapter 7 — 4 years. • Chapter 13 after Chapter 13 — 2 years. Automatic Stay Without Discharge You may technically file a new bankruptcy case before the waiting period expires. Doing so will trigger the automatic stay — temporarily halting collection actions — but you will not be eligible for a discharge. Courts scrutinize serial filings for potential abuse of the system. Dismissal of a Prior Case If a prior bankruptcy was dismissed due to your willful failure to appear or comply with court orders, or you voluntarily dismissed it after creditors sought to recover property, you may be barred from refiling for 180 days. If a case was dismissed with prejudice, you may be barred from refiling for a specific period — or potentially forever on the debts that existed at the time of the original filing. A Real Example Christopher had a client who filed Chapter 7 on her own but did not complete the credit counseling course. Her case was dismissed and she received no discharge. Five years later she came to him with thousands of dollars in medical bills that had accrued after her prior filing. Because she had never received a discharge and none of the other disqualifying conditions applied, she was eligible to refile and receive a full Chapter 7 discharge. She was fortunate — if she had previously received a discharge, she would have been required to file Chapter 13, which can be six times as expensive as Chapter 7. Credit Counseling Requirement Regardless of prior filings, completing a credit counseling course from an approved agency within 180 days before filing is required for both Chapter 7 and Chapter 13. This is separate from the Debtor Education Course required after filing.

Credit Counseling Course — Required Before Filing

The 90-minute Online Credit Counseling Course is required before filing bankruptcy. The certificate is valid for 180 days (6 months). If the certificate expires before you file, you must complete the course again. This course is separate from the Debtor Education Course required after filing. Both certificates are required — missing either one will result in your case being dismissed without a Discharge. Instructions 1. Create an account at DebtorCC.org to begin the Credit Counseling Course. 2. After creating your account, you will be presented with two options — select Option 2. 3. Use attorney code mulvaney425cc to ensure the course fee is billed to Christopher and that your certificate is sent to him automatically. Important — Final Step to Receive Your Certificate After completing the course, you will receive the following message: "By law, to get your certificate you must call 1 (800) 610-3920 (press option 7) during the hours below and speak with a counselor. You will not get your certificate until you complete this step." You must make that call and speak with a counselor before your certificate will be issued. Do not skip this step. Support Hours • Monday – Friday: 9 AM – Midnight EST • Saturday – Sunday: 9 AM – 5 PM EST

Five Requirements to Qualify for Chapter 7

To qualify for Chapter 7 bankruptcy, you must meet all five of the following requirements: 1. Income — Your income must be below the Washington State median for your household size, or you must pass the Means Test (see below). 2. Prior Discharge — You must not have received a Chapter 7 discharge in the past 8 years, or a Chapter 13 discharge in the past 6 years. 3. Non-Exempt Assets — You must not have non-exempt assets that you are unwilling to surrender to the Bankruptcy Trustee. Washington State exemptions protect most of what the average person owns — but this must be analyzed carefully before filing. 4. Tax Returns Filed — You must have filed all required tax returns for the past 4 years. 5. Current on Secured Debt — If you wish to keep your home and vehicles, you must be current on those payments at the time of filing. If you do not meet all five requirements, Chapter 13 may be the appropriate alternative. Christopher will analyze your specific situation before any petition is filed.

BATNA — Best Alternative to a Negotiated Agreement

BATNA stands for Best Alternative to a Negotiated Agreement — a concept from negotiation theory that is directly applicable to bankruptcy. It is only your ability and willingness to file for bankruptcy protection that gives you any negotiating leverage with creditors. A creditor who knows you cannot or will not file bankruptcy has no reason to settle. A creditor who understands that you qualify for Chapter 7 and are prepared to file has every reason to negotiate. By analyzing your worst-case scenario first — what you would need to do if you cannot reach a settlement — you accomplish two things: 1. You increase the chances of avoiding bankruptcy by negotiating from a position of informed strength. 2. You avoid making futile payments to creditors whose balances could be discharged, preserving those funds for necessities and filing costs. Always start with the worst-case scenario. Nobody wants to file bankruptcy — it is a last resort. But understanding whether you qualify, and what it would accomplish, is the foundation of every debt relief strategy.

Debt-to-Income Analysis

Bankruptcy and debt settlement analysis requires your total unsecured debt divided by your gross annual family income — your debt-to-income ratio. A ratio of 35% or higher is considered high risk and is a strong indicator that bankruptcy protection may be appropriate. You can include more details about your situation on the intake form and attach any PDF documents you wish when you send it back.

The Means Test — Do You Qualify for Chapter 7?

The means test is the primary tool used to determine whether you qualify to file for Chapter 7 bankruptcy. It is an analysis to determine whether you have the financial "means" to repay your debts — thereby preventing abuse of the bankruptcy system by those who could afford to repay creditors through a Chapter 13 plan. Step 1 — Compare Your Income to the Washington State Median Calculate your Current Monthly Income (CMI): Average your gross income (before taxes) for the six full calendar months immediately preceding your bankruptcy filing date. Partial months are not counted. Annualize your CMI by multiplying it by 12, then compare it to the Washington State median income for your household size. Washington State Median Income Figures (Chapter 7 cases filed on or after April 1, 2026) Household Size Annual Median Income ───────────────────────────────────────── 1 person $88,585 2 people $107,100 3 people $131,737 4 people $156,567 Each person over 4 add $11,100 These figures are sourced from the U.S. Trustee Program of the Department of Justice and are updated approximately every May and November. If your annualized CMI is below the median for your household size, you pass the means test and are generally eligible for Chapter 7. You do not need to complete Step 2. Step 2 — Calculate Disposable Income (if your income exceeds the median) If your income is above the state median, you proceed to Step 2. This involves deducting allowable monthly expenses using a combination of IRS standards and some of your actual expenses — including housing, utilities, food, transportation, and healthcare. Subtracting allowable expenses from your CMI produces your monthly disposable income. If your disposable income is low enough to show you cannot make meaningful payments to creditors, you may still qualify for Chapter 7. If it is too high, you may be required to file Chapter 13 instead. Important Exceptions • Disabled veterans whose debts were incurred during active duty may be exempt from the means test. • Debtors with primarily business-related debts may also be exempt. • Even if you fail the initial calculations, you may argue that "special circumstances" justify additional expense deductions or adjustments to your CMI. Consult Christopher before concluding you do not qualify. Bankruptcy law is complex, and the means test has nuances that can make the difference between Chapter 7 and Chapter 13.

IRS Tax Liens — What Bankruptcy Cannot Fix

"A man who is his own lawyer has a fool for a client." — Early 19th-century proverb, Henry Kett, The Flowers of Wit (1814) A Notice of Federal Tax Lien is one of the most serious financial events a taxpayer can face — and one of the most important reasons to consult an attorney before filing bankruptcy. Tax Liens Are Not Dischargeable in Bankruptcy Personal tax liability can be discharged in bankruptcy only under very limited circumstances: all tax returns must have been filed on time, and all taxes must have been paid on time for three consecutive years. Even when personal liability is discharged, a tax lien that has already attached to property survives the bankruptcy and remains a burden on that property. A Real Example Christopher had a client whose business was struggling. To keep the business afloat, he maxed out his credit cards and stopped remitting the federal income, Social Security, and Medicare taxes he was withholding from his employees' paychecks. The bankruptcy discharged his credit card debt — but the IRS tax lien for over $300,000 permanently remained on his house, accruing interest. It gutted any future proceeds from the sale of his home and deeply affected his retirement standard of living. The lesson: payroll taxes withheld from employees — called trust fund taxes — are among the most dangerous debts a business owner can accumulate. They are almost never dischargeable, and the IRS has broad collection powers including liens, levies, and personal liability assessments against responsible parties. If you have an IRS tax lien, consult Christopher before filing bankruptcy so you understand exactly what the discharge will and will not accomplish.

Garnishments — Act Quickly

If you have a garnishment, it will run for 60 days unless you file for bankruptcy. If you file, you will get back any funds taken from your paycheck within those 60 days — so it is important to file before the garnishment ends. If you do not file, you will have a settlement opportunity after 60 days. Christopher can assist with your bankruptcy evaluation and analysis, which is also needed to evaluate settlement feasibility.

Cease & Desist — Responding to Collection Letters

You can use a cease and desist letter to respond to any collection letters you receive. Scan and email the creditor's letter to Christopher, and mail the original letter back to the creditor. Doing so redirects communication away from you to his office and demands proof that you owe the debt. Many creditors will stop pursuing you based on the letter alone. If you were served with a Summons & Complaint, complete and mail the attached Notice of Appearance to the Court and to Plaintiff's Counsel to avoid a Default Judgment — complete, sign, and send to Christopher for review before you mail it. The combination of a letter from a lawyer every time you receive a collection letter, and a dispute every time inaccuracies are reported on your credit report, telegraphs to creditors that you are a responder. Creditors make money from default judgments against non-responders.

Getting Started — Credit Report & Petition Preparation

Pay $50 via Zelle, e-check, or Visa/Mastercard debit card (in that order of preference) and Christopher can download your bankruptcy-specific credit report. You can then enter information into the BK Packet website to assist with petition preparation — this gives you a sense of the information required. Only enter creditors you don't think will appear on your credit report. Anything you enter or upload is helpful. Don't stress about it — something is better than nothing. Everything will be reviewed together in a Zoom meeting. If you want Christopher to prepare a draft of your petition for analysis, pay an additional $450 — this covers the bankruptcy filing fee and the required credit counseling and debtor education courses. If you file, you have already paid the costs of filing. If you don't file, that amount is the flat fee for preparation of the draft petition and advice about your options. The more you do before the meeting, the more productive it will be — but anything you do is helpful. Christopher's goal is that you will feel less anxious and more in control as a result of your consultation.

Student Loans — Income-Based Repayment as an Alternative to Bankruptcy

Student loans are generally not dischargeable in bankruptcy. Before filing, it is worth exploring whether an income-based repayment program can reduce your monthly payment to an affordable amount — or even zero — and keep you out of default. Income-Based Repayment (IBR) IBR is a federal repayment plan that caps your monthly student loan payment based on your income and family size. If your income is low enough, your required payment can be set at $0 — keeping you current without any out-of-pocket cost. After 25 years of eligible payments, any remaining balance is forgiven. Pay As You Earn (PAYE) PAYE is a newer repayment plan with a lower monthly payment cap than IBR. It provides forgiveness after 20 years of payments rather than 25. Recent college graduates with federal loans taken out after October 2007 are generally eligible. Public Service Loan Forgiveness (PSLF) If you are a teacher, government employee, or work for a nonprofit 501(c)(3) organization, you may qualify for Public Service Loan Forgiveness after 10 years of eligible payments and employment. This can result in complete forgiveness of your remaining federal student loan balance — far sooner than the 20- or 25-year IBR/PAYE timelines. Why This Matters in Bankruptcy Because student loans survive bankruptcy discharge in almost all cases, reducing or eliminating the monthly payment through IBR or PAYE can remove student loans as a driver of financial distress — potentially making bankruptcy unnecessary, or making a Chapter 13 plan more feasible by reducing your required monthly obligations. Use the Department of Education's Repayment Estimator at studentaid.gov to calculate what your payments would be under each plan.

After Filing — What Happens Next

Christopher has registered you for electronic notice by email of all documents filed in your case. Zoom Section 341 Meeting of Creditors The Section 341 Meeting of Creditors — the opportunity for the Bankruptcy Trustee to ask you questions, which you are required to answer under oath — is conducted via Zoom as the post-Covid standard. The Zoom link and phone number (if needed) will be on the Notice you receive by email and regular mail. FBI Investigates Bankruptcy Crimes Federal law provides severe criminal penalties for bankruptcy crimes, including bribery, concealment of assets, false statements, false claims, filing under a fictitious name, and perjury. Title 18, United States Code, Sections 152 and 3571 provide penalties of up to 5 years imprisonment, a fine of not more than $250,000, or both. The FBI investigates bankruptcy crimes. Chapter 13 — Confirmation Hearing If you filed under Chapter 13, you do not need to attend the confirmation hearing scheduled after your 341 Meeting. You will not receive a discharge until you complete the plan — which takes a maximum of 5 years. National Data Center (Chapter 13) The National Data Center maintains records for all Chapter 13 cases. Create a free account at ndc.org to track payments, claims, and disbursements in your case. Doing so is very helpful and will answer many of your questions.

Documents Required Before the 341 Meeting

You must email the following to Christopher at least 10 days before the Zoom 341 Meeting so he can upload them to the Trustee's website in time for review: 1. Driver's license 2. Social Security card (or W-2) 3. Last tax return filed 4. Pay stubs for 60 days including the filing date 5. Bank statements including the filing date The Court only accepts PDF documents — please scan everything to PDF. Do not send paper documents, as they create delays. If documents are not received in time, your case will be continued and you will have to appear on Zoom again. The Trustee will ask whether you read the Bankruptcy Information Sheet.

Debtor Education Course (Required After Filing)

The 120-minute Online Financial Management Course — also called the Debtor Education Course — is required after filing bankruptcy, but before the 341 Meeting. Instructions 1. Click to create an account at DebtorCC.org to begin the financial management course. 2. You must enter your Bankruptcy Case Number to start the course — for example: 25-54321. 3. Use attorney code mulvaney425edu to ensure the course fee is billed to Christopher and that your certificate is sent to him automatically. 4. Enter Christopher's email address — [email protected] — to ensure your certificate is filed with the Court. Technical Support Contact DebtorCC.org at 1 (800) 610-3920 for any technical issues: • Monday – Friday: 9 AM – Midnight EST • Saturday & Sunday: 9 AM – 5 PM EST WARNING: If you do not obtain both a Credit Counseling Certificate (required before filing) and a Debtor Education Certificate (required after filing), your case will be dismissed and closed without Discharge. It costs $500 to re-open your case to receive a Discharge.

Automatic Payments — Important

Automatic payments for secured debts such as houses and cars will stop when you file bankruptcy. You will need to make those payments manually during your bankruptcy and restart automatic payments after your Discharge.

"Chapter 20" — Filing Chapter 7 Followed by Chapter 13

"The power to tax involves the power to destroy... the power to destroy may defeat and render useless the power to create... beyond which no institution and no property can bear taxation." — Chief Justice John Marshall It is possible to file Chapter 7 first, followed by Chapter 13 in a sequence euphemistically referred to as "Chapter 20." WARNING: This strategy is controversial and is disfavored by both Bankruptcy Trustees and Bankruptcy Judges. The risk of objection is significantly higher than in a standard filing. Do not pursue this strategy without careful consultation with Christopher. When Chapter 20 May Apply This strategy applies only to debtors who are eligible for Chapter 7 and who have an objective that cannot be accomplished in Chapter 7 alone. Example: A below-median income debtor who owes the IRS and is behind on a car payment — but who expects a better job in two or three years — may choose to file Chapter 7 first to discharge unsecured debt, and then file Chapter 13 to pay off the IRS and the car. The advantage is that the Chapter 13 plan is calculated based on income at the time of the Chapter 7 filing, not the higher future income. Unsecured creditors receive less than they would have if the debtor had simply waited and filed Chapter 13 alone. Why Trustees and Judges Disfavor It It is the protection of future income — income that would not have been shielded if the debtor had filed Chapter 13 alone — that makes this strategy appear unfair from the creditors' perspective, particularly when increased earnings would have been sufficient to repay 100% of the debt. Christopher's Standard Advice Do not do anything you would be uncomfortable explaining in open court. Keep the perspective of creditors, Trustees, and Judges in mind when evaluating any bankruptcy strategy. WARNING — Disclosure Obligation: If you reasonably expect a change in employment or income within one year of filing, that expectation must be disclosed. Any income that has been earned but not yet received — such as commissions — must also be disclosed.

Top 10 Pitfalls — What Not to Do Before Filing

YOU MUST READ AND UNDERSTAND THE BANKRUPTCY PETITION, AND NOTIFY CHRISTOPHER OF ANY ERRORS OR OMISSIONS, BEFORE YOU SIGN IT AND IT IS FILED. FAILURE TO DO SO IS AN UNCONSCIONABLE BREACH OF YOUR DUTIES AS A DEBTOR. 1. Do Not Borrow from Retirement Accounts Retirement funds are exempt when held inside the retirement account — but are not exempt once withdrawn. If you borrow $50,000 from your 401(k) and deposit it into your checking account before filing, you will lose the $50,000 to creditors and still owe the 401(k) loan. This is especially important in Snohomish County, where adverse outcomes are more likely than in King or Pierce County. 2. Stop Using Credit (Including Payday Loans and Cash Advances) The Bankruptcy Code presumes you did not intend to repay if you take a cash advance within 70 days of filing, or use credit within 90 days of filing — and you will be required to repay that amount. Even credit used more than 90 days before filing can be challenged if a creditor can show you lacked the intent to repay. Do not charge when you lack the income to repay, and do not charge and then stop making payments. All credit access will be terminated upon filing — prepare now for how you will live without credit. 3. Stop Paying General Unsecured Creditors if Your Debt-to-Income Ratio is 35% or Higher Unsecured creditors have no collateral to repossess. If you pay any unsecured creditor more than $600 in the 90 days before filing, you may be required to pay that amount back so all unsecured creditors can share on a pro-rata basis — this is called a preference. Continue paying taxes, child support, spousal support, and student loans, as these are not in the same class as general unsecured creditors. Preferential payments may require conversion to Chapter 13 if the amount cannot be repaid in a lump sum. If you want to keep secured collateral (car, appliances), keep paying the secured creditor. 4. Do Not Pay Back Family Members Before Filing Spouses, parents, siblings, cousins, and adult children are "insiders" under the Bankruptcy Code. Payments to insiders made within one year before filing may be recovered by the Trustee — typically by requiring the debtor to convert to Chapter 13 and waive the statute of limitations on the Trustee suing the relative who received the money. Pay family members after your discharge. 5. Do Not Settle Debt Before Filing If you settle a debt before filing, you will owe income tax on the amount forgiven — called imputed income. For example, if you owe $100,000 and settle for $10,000, you will receive a 1099 increasing your taxable income by $90,000. That tax debt is not dischargeable in bankruptcy, even though the original debt would have been. WARNING: Consult your CPA regarding exemptions to the general rule of tax liability on forgiven debt. Christopher is not a CPA and cannot give tax advice, but will flag the questions you should bring to your CPA. The IRS publishes answers to common questions about bankruptcy and debt forgiveness at irs.gov. 6. Do Not Bank Where You Have Credit If you have a checking or savings account at the same institution where you have a mortgage, car loan, credit card, or signature loan, that creditor can set off your account and take payment without notice if you miss a payment. Move your funds to a bank where you have no credit before filing. BECU will terminate your membership if you owe them money and file bankruptcy — change banks immediately. Close all Wells Fargo accounts regardless of whether you owe them money; Wells Fargo has a policy of freezing accounts upon a bankruptcy filing. 7. Cancel All Automatic Payments (and Change Banks) All automatic payments will be cancelled by creditors when you file. Cancel them yourself first so you control which creditors you pay, avoid preferential payments, and preserve funds needed to file. Any NSF charges will be listed as debts in your bankruptcy. Change banks in case automatic payments are not stopped in time. 8. Report All Assets — Do Not Sell or Transfer Assets Everything you own or may have an interest in must be listed on your bankruptcy petition — every bank account (including joint accounts or accounts not in your name that contain your money), every asset of any kind, and every potential claim including personal injury cases, inheritances from estates not yet fully administered, debts owed to you, patents, copyrights, mineral rights, and business interests. If you do not list it, you cannot claim it as exempt. The asset remains in your bankruptcy estate subject to the Trustee's claims in perpetuity. Failure to disclose assets can result in loss of discharge and criminal prosecution. If you become entitled to receive (not actually receive) an inheritance within 180 days of filing, you are required to report it to Christopher immediately. 9. Verify That the Creditor Has Perfected Their Lien on Your Car Before Filing (if Purchased Within 6 Months) If you purchase a car within 6 months of filing, the creditor has 30 days to record the lien with the Department of Licensing. If they fail to do so, the Trustee can avoid the lien, repossess the car, and sell it for the benefit of creditors — and you will lose your down payment, all payments made, and the vehicle. You have no control over whether the creditor timely perfects their lien. This is especially important in Snohomish County. 10. Do Not Have an Unsecured Loan and a Secured Loan with the Same Creditor If you have both a car loan and a credit card with the same credit union, you have agreed to cross-collateralization. If you default on the credit card, your car can be repossessed even if you are current on the car payments. Credit unions often offer interest rate incentives to encourage multiple accounts — it is not worth it in the bankruptcy context.

Bankruptcy Protection Triggers — What Drives People to File

Most people do not choose bankruptcy — they are driven to it by one or more of the following collection actions that make continuing without relief impossible. 1. Wage Garnishment A Judgment Creditor can garnish 25% of your net wages using a Writ of Garnishment, valid for 60 days and renewable indefinitely as long as a balance remains on the Judgment. Losing a quarter of every paycheck is the single most common reason people seek bankruptcy protection. 2. Bank Account Seizure A Writ of Attachment allows a creditor to seize your bank account up to the full amount of the Judgment plus costs, penalties, and interest — with no advance notice. Judgments are valid for 10 years and can be renewed for another 10 years. If a creditor waits until near the end of the 6-year statute of limitations to sue, they can have nearly 26 years to collect. 3. Foreclosure The Washington State Homestead Exemption protects home equity from creditors — approximately $729,600 in King County. Debtors may choose either Washington State or Federal exemptions. The Federal exemption for a married couple is approximately $50,300. Personal property exemptions are generally more generous under the Federal exemptions, so most Washington filers use them. Debtors with home equity significantly above $50,000 who use the Federal exemptions must keep bank account balances very low before filing and face a higher likelihood of personal property forfeiture. 4. IRS Tax Lien Exemptions generally do not apply to tax debt the way they do for other creditors. A Chapter 13 repayment plan — paying the IRS over 5 years — is often the most appropriate option for debtors with a tax lien that would interfere with refinancing or selling real property. For example, a $30,000 IRS debt could be paid at $500 per month for 60 months, releasing the lien at the end of the plan. File your tax returns and pay your taxes on time every year. If you do not, the 3-year clock for dischargeability of tax debt never starts. Adjust your withholding to receive a refund to apply to any arrears, and make some payment every month — even $100. Regular monthly payments, proper withholding, and on-time filing demonstrates good faith and reduces the likelihood of a tax lien being filed. 5. Vehicle Repossession Repossession of a car, boat, motorcycle, or RV can also trigger bankruptcy — but by the time repossession occurs, it is generally too late to recover the vehicle without paying the debt in full, which often exceeds the vehicle's value. The unsecured deficiency balance after the vehicle is sold at auction would be discharged in bankruptcy.

Bankruptcy Exemptions — What You Get to Keep

Most bankruptcy filers keep everything they own. Approximately 99% of filers have no assets surrendered to the Trustee. Only about 1% of filers must surrender items of significant value — those whose assets are so far above the exemption amounts that even permitted exemption planning cannot protect them. Permitted exemption planning includes spending money on the health of yourself and your family, performing necessary maintenance on a home or vehicle, and funding retirement accounts as allowed by law. These expenditures cost money but do not add value for purposes of bankruptcy exemptions — and are entirely appropriate. Key Exemptions • Wages — 75% of net wages are exempt from garnishment. • Homestead — approximately $729,600 in King County (Washington State exemption). • Retirement Accounts — IRAs and Roth IRAs are exempt up to $1,512,350. Do not borrow from or cash out retirement accounts to pay creditors — the funds are protected inside the account and unprotected once withdrawn. • Personal Property — generally more generous under the Federal exemptions; most Washington filers choose Federal. Washington vs. Federal Exemptions Debtors in Washington may choose either the Washington State exemptions or the Federal exemptions — but not a mix of both. The Federal exemptions are generally more favorable for personal property. Debtors with significant home equity above $50,000 who elect the Federal exemptions must keep bank account balances low before filing and should expect closer scrutiny of personal property. Links to the full exemption schedules — both Federal and Washington State — are in the reference links below.

How Property Is Held — Community, Separate, Trust, and Liens

Understanding how property is titled and held is essential to bankruptcy planning. The same asset can have very different outcomes depending on how it is owned. Community Property vs. Separate Property In Washington State, property acquired during marriage is presumed to be community property — regardless of how it is titled. Each spouse's separate creditors can reach community property in some circumstances. A prenuptial or postnuptial agreement, combined with a Separate Property Revocable Living Trust, clearly identifies separate property and rebuts the community property presumption in writing — protecting against the other spouse's claims and the claims of the other spouse's separate creditors. Single people may hold property as joint tenants with right of survivorship or in other joint ownership arrangements, but there is no community property presumption for unmarried persons. In a Trust or Not in a Trust Property held in a Revocable Living Trust is a non-probate asset — a Successor Trustee can transfer it without court appointment of a Personal Representative. A Community Property Revocable Living Trust holds marital assets. A Separate Property Revocable Living Trust, used in conjunction with a prenuptial or postnuptial agreement, holds separate property and clearly documents its character. Burdened by a Lien or Not Property itself can carry liability for debts — called a security interest — in addition to or instead of the personal liability of the owner. Personal bankruptcy discharges personal liability but does not affect liens except under limited circumstances in Chapter 13 (see Lien Stripping and Cram Down). That is why a creditor may repossess a car after a bankruptcy discharge but may not sue you personally for the deficiency. Dischargeable vs. Non-Dischargeable Debt Knowing whether a debt can be discharged in bankruptcy determines your negotiating leverage and which debts to pay first. Always pay non-dischargeable debt first. Examples of non-dischargeable debt: • Student loans (in almost all cases) • Most tax debts (subject to the 3-2-240 rule — see above) • Child support and spousal maintenance • Debts arising from fraud or willful misconduct • Criminal fines and restitution Paying credit card debt while not paying student loans — when you are eligible for a Chapter 7 discharge — makes no financial sense. The credit card debt would be discharged; the student loan would survive.

The Bankruptcy Court

The Bankruptcy Court is a federal court specifically designed to handle bankruptcy cases in the United States. It is a specialized court system with its own rules and procedures, established to oversee the process of debt relief for individuals and businesses who are unable to pay their debts. Fresh Start A key goal of bankruptcy law is to give debtors a fresh start by relieving them of most of their debts. This can be achieved through: • Liquidation (Chapter 7) — selling a debtor's non-exempt assets to pay creditors, with remaining eligible debts discharged. • Reorganization (Chapter 13) — approving a repayment plan for debtors to repay creditors over time, allowing individuals to restructure their finances and keep their property. Protection from Creditors Once a bankruptcy petition is filed, an automatic stay is put in place, halting most collection efforts from creditors — including lawsuits, wage garnishments, foreclosures, and collection calls. Exclusive Federal Jurisdiction Bankruptcy cases are handled exclusively in federal courts under the U.S. Bankruptcy Code, ensuring consistency and uniformity in the application of bankruptcy law across the country. Bankruptcy courts also handle litigation related to bankruptcy cases, such as determining property ownership, debt amounts, and dischargeability of debts. Promoting Economic Stability By providing a structured framework for dealing with financial distress, bankruptcy courts help both individuals and businesses get back on their feet — contributing to overall economic stability and providing a more predictable environment for creditors and debtors alike.

The Bankruptcy Appellate Panel (BAP)

The Bankruptcy Appellate Panel (BAP) is a specialized court within the U.S. bankruptcy system, established by the Bankruptcy Reform Acts of 1978 and 1994. It functions as an intermediate appellate level between the bankruptcy court and the federal district court. A BAP is a panel of three bankruptcy judges authorized to review appeals of decisions made by bankruptcy courts within their circuit. BAPs exist in only a limited number of circuits — the First, Sixth, Eighth, Ninth, and Tenth Circuits have established BAPs. Washington State is in the Ninth Circuit. A BAP cannot hear appeals in a particular district unless a majority of the district judges in that district have authorized it. Parties generally must consent to have their appeal heard by a BAP; otherwise, the appeal is heard by the district court. Why the BAP Matters • Bankruptcy Expertise — BAPs are composed of bankruptcy judges with specialized knowledge and experience in bankruptcy law. • Consistency and Efficiency — BAPs help ensure fair and consistent application of bankruptcy laws and reduce the workload of higher courts. • Precedent — BAP decisions can influence the interpretation and application of bankruptcy laws, setting precedents followed in future cases. • Access to Justice — BAPs provide a specialized forum for resolving bankruptcy-related disputes and reviewing bankruptcy court decisions.

Tax Issues in Bankruptcy — Can Income Tax Debt Be Discharged?

Income tax debt can potentially be discharged in bankruptcy under Chapter 7 or Chapter 13, but strict conditions must be met. These conditions are commonly referred to as the "3-2-240 Rule" or the Five-Part Test. The Five-Part Test 1. The 3-Year Rule — The income tax return for the debt must have been due at least three years before the bankruptcy filing date, including any extensions granted. 2. The 2-Year Rule — The tax return must have been actually filed at least two years before the bankruptcy petition filing date. If the IRS filed a substitute return on your behalf, or if you filed late after extensions expired, some courts have declined to treat that as a qualifying return — though outcomes vary by jurisdiction. 3. The 240-Day Rule — The IRS must have assessed the tax at least 240 days before the bankruptcy filing. This period may be extended if the IRS suspended collection activity due to a pending offer in compromise or a prior bankruptcy filing. 4. No Fraud or Willful Evasion — You must not have filed a fraudulent tax return or willfully attempted to evade paying the taxes. 5. A Return Was Filed — You must have filed a tax return for the debt you wish to discharge. Returns filed late, after the IRS has already filed a substitute return, may not qualify in all courts. Important Limitations • Only income taxes — Only income tax debts are potentially dischargeable. Payroll taxes, property taxes, trust fund taxes, and fraud penalties generally cannot be discharged in bankruptcy. • Tax liens may survive discharge — If the IRS recorded a tax lien against your property before you filed bankruptcy, that lien may remain attached to the property even if the underlying personal tax liability is discharged. The discharge eliminates your personal obligation to pay; it does not automatically remove a lien already recorded against real estate or other assets. Consult Christopher before filing if you have IRS debt. The interaction between tax liens, discharge eligibility, and the timing rules is one of the most complex areas of bankruptcy law — and getting it wrong can leave you with a lien that outlasts your discharge.

Taxability of Discharged Debt

The central tax benefit of bankruptcy is the exclusion of most forgiven debt from income. Cancellation of Debt Income (CODI): Outside of bankruptcy, if a creditor cancels or forgives a debt, the debtor must generally include the forgiven amount as income and pay taxes on it. This commonly occurs with foreclosures and debt settlements. The Bankruptcy Exclusion: Debt discharged in a Title 11 bankruptcy case is not considered taxable income for the debtor. This is a critical advantage of bankruptcy over other forms of debt relief. Form 982: If you receive a Form 1099-C for canceled debt that was discharged in bankruptcy, file Form 982 with your tax return. This form notifies the IRS that the debt was canceled in a bankruptcy case and is not taxable.

Dischargeability of Tax Debts

Not all tax debts can be eliminated in bankruptcy. The rules are complex and depend on the type of tax, how old the debt is, and whether returns were filed. Priority vs. Non-Priority Tax Debt: Recent income taxes and payroll taxes are generally considered priority debts and are not dischargeable. Older income tax debts may be discharged if they meet certain criteria — such as the tax return being due at least three years before filing for bankruptcy. Strict Requirements for Discharge: To have income tax discharged in a Chapter 7 filing, specific criteria must be met regarding the age of the debt, timely filing of tax returns, and assessment timing by the IRS. Fraudulent taxes are never dischargeable. Tax Liens: A tax lien placed on a debtor's property before bankruptcy may survive the proceeding, even if the underlying personal tax liability is discharged.

Asset Sales and Capital Gains

In Chapter 7 bankruptcy, a separate taxable entity called the bankruptcy estate is created. This entity holds the debtor's non-exempt assets and is responsible for any taxes incurred. Sale of Assets: The bankruptcy trustee may sell assets to pay creditors. Any gain realized from these sales is taxed to the bankruptcy estate — not the individual debtor. The debtor is responsible for capital gains only from the sale of assets owned after the bankruptcy filing. Election to Shorten Tax Year: For a Chapter 7 filing, an election can be made to create two short tax years. The tax liability from the first short year becomes a claim against the bankruptcy estate, meaning the trustee — not the debtor — is responsible for paying it.

Treatment of Tax Refunds

The timing of a bankruptcy filing can significantly affect your tax refund. Chapter 7: Any portion of a tax refund earned before filing is considered an asset of the bankruptcy estate and can be taken by the trustee to pay creditors. Strategic filing — for example, after receiving and spending the refund on necessary living expenses — may allow you to keep it. Chapter 13: The tax refund is considered disposable income and may need to be turned over to the trustee each year to help fund the repayment plan. In some cases, a debtor can petition the court to keep a portion of the refund for necessary expenses.

Chapter 7 vs. Chapter 13 — Tax Differences

The tax implications differ significantly based on the chapter filed. Chapter 7 (Liquidation): Creates a separate taxable bankruptcy estate for the debtor's non-exempt assets. The debtor's tax attributes are passed to the estate. Discharged debt is non-taxable to the individual debtor. Chapter 13 (Reorganization): No separate taxable estate is created. The debtor remains responsible for all tax obligations throughout the plan. Priority tax debts must be paid in full through the repayment plan. All tax returns must have been filed on time for the four years before filing.

Confirmation Hearing

If you filed under Chapter 13, you do not have to attend the confirmation hearing scheduled after your 341 Meeting. Your attorney will handle it.

Discharge & Plan Completion

You will not receive a Discharge until you complete your repayment plan, which has a maximum duration of 5 years. All plan payments must be made on time and in full before a Discharge will be entered.

National Data Center — Track Your Case

A National Data Center maintains records for all Chapter 13 cases. Create a free account at the National Data Center (www.ndc.org) to track payments, claims, and disbursements in your case. Doing so is very helpful and will answer many of your questions about where your plan payments are going and what creditors have been paid.

Automatic Payments — Important

Automatic payments for secured debts such as houses and cars will stop when you file bankruptcy. You will need to make those payments manually during your bankruptcy and restart automatic payments after your Discharge.

Debtor Education Course (Required)

The 120-minute Online Financial Management Course — also called the Debtor Education Course — is required after filing, but before your Discharge. 1. Create an account at DebtorCC.org to begin. 2. Enter your Bankruptcy Case Number — for example: 25-54321. 3. Use attorney code mulvaney425edu so the fee is billed to Christopher and your certificate is sent to him automatically. 4. Enter Christopher's email — [email protected] — to ensure your certificate is filed. Contact DebtorCC.org at 1 (800) 610-3920 for technical support (Monday–Friday 9 AM–Midnight EST; Saturday–Sunday 9 AM–5 PM EST). WARNING: If you do not obtain both a Credit Counseling Certificate (before filing) and a Debtor Education Certificate (after filing), your case will be dismissed and closed without Discharge. It costs $500 to re-open your case.

Cram Down — Reduce Your Car Loan to the Vehicle's Value

"In the middle of difficulty lies opportunity." — Albert Einstein Cram down is one of the most powerful tools available in Chapter 13 — and it is not available in Chapter 7. What Is Cram Down? Cram down is the bifurcation — or splitting — of a car loan into two parts: secured and unsecured. The secured portion is based on the current market value of the vehicle. The unsecured portion is the difference between what you owe and what the car is worth. If you are not required to pay anything to unsecured creditors in your Chapter 13 plan, the unsecured portion of the car loan is discharged at the end of the plan. You pay only the value of the vehicle over 5 years at 6% interest — or less, if your contract rate is already lower. Example: If you owe $10,000 on a car worth $5,000 at 12% interest with a $223/month payment, cram down reduces your balance to $5,000 and your interest rate to 6% — dropping your payment to $97/month. That is a savings of $126/month, or $7,560 over 5 years. Eligibility Requirement To qualify for cram down, the vehicle must have been purchased more than 910 days before the bankruptcy filing date. Use the date calculator at convertunits.com/dates/daysfromdate to determine whether your vehicle meets the 910-day threshold. Vehicle Value The secured portion of the debt is based on the current market value of the vehicle. Use Kelley Blue Book (kbb.com) to calculate your vehicle's value before your consultation.

Lien Stripping — Available in Chapter 13, Not Chapter 7

Liens are typically unaffected by the bankruptcy discharge and remain burdens on real property even after the debtor no longer has any personal liability for the debt. However, lien stripping — an adversary proceeding (a federal lawsuit within your bankruptcy case) to obtain a court order avoiding the lien — is available in Chapter 13, but only if you complete the plan. Even if you win the adversary proceeding, the lien will be reinstated if your case is dismissed and you do not obtain a discharge. Eligibility Requirements Strict requirements must be met. You must have an appraisal showing the value of your home is less than the balance on the first mortgage. If the value is even one dollar more than the first mortgage balance, lien stripping of the second lien is unavailable. Because appraised values are typically a range, contested valuation issues can make the process uneconomical. However, for homeowners who have suffered a significant drop in home value, lien stripping can allow equity to begin building again. Use Zillow (zillow.com) for an initial estimate of your home's value before your consultation. When You Are Not Eligible — The Disposable Rental House Problem If you are not eligible for lien stripping but are seriously underwater on your home, you may effectively have what amounts to a disposable rental house — one that provides some tax advantage but in which you will never build equity. Example: If your house is worth $300,000, you owe $400,000 on the first mortgage, and $100,000 on the second, it does not make sense to keep making payments on the second after your discharge. The second lien holder will not foreclose as long as you are current on the first mortgage, because the foreclosure sale price will be less than $300,000 — the lender would receive nothing and is barred by the discharge from suing you personally. The lien remains on the property, eliminating any hope of building equity. In this situation, you have no incentive to maintain or improve the home. When you are ready to move, you simply default on the first mortgage and let the lender foreclose. You live for free until they do, and cannot be sued for any deficiency. This is a public policy misalignment that needs to be addressed by the Washington State Legislature. Debtors trapped in underwater homes are required to make principal payments they will never recover, have no incentive to maintain the property, and become foreclosures waiting to happen — damaging economic recovery and impairing the fresh start that bankruptcy is designed to provide. Use the amortization schedule calculator at myamortizationchart.com to see the amount of required principal payments on your mortgage by year.

Foreclosure & Bankruptcy — Washington State (RCW 61.12)

Washington foreclosure law is governed by RCW 61.12. A plain-language summary is available at foreclosurelaw.org/Washington_Foreclosure_Law.htm. Personal Liability vs. Liens — A Critical Distinction The word "mortgage" is commonly understood but does not distinguish between the two key documents in purchasing a home: • The Promissory Note — creates your personal liability for the debt. This is the right of a creditor to sue you, obtain a Judgment, and garnish your wages. • The Deed of Trust — creates the lien on your home, which includes the right to foreclose if you do not pay. Liens are liabilities on the property only, not on you personally. It is personal liability that is discharged in bankruptcy. Liens are unaffected by discharge — except in certain cases (see Lien Stripping and Cram Down). Non-Recourse vs. Recourse Mortgages For homeowners with only one original purchase money mortgage that has never been refinanced: if the bank forecloses through a non-judicial foreclosure, the bank is limited to the price received at the foreclosure sale and cannot sue you personally for the deficiency — the difference between what you owe and the foreclosure sale price. This protection is called Non-Recourse. However, if you have a Home Equity Line of Credit (HELOC), a second mortgage, or have refinanced, you should assume you have personal liability for that debt. After a foreclosure sale, the HELOC or second lien holder can sue you personally for the remaining balance. It is this personal recourse liability that commonly triggers bankruptcy. Know Your Exposure Before You File Whether you have one original mortgage or multiple liens — and whether you have refinanced — determines your personal liability exposure and the right bankruptcy strategy. Christopher will analyze your specific situation as part of your bankruptcy consultation. Tax Warning ForeClosures can have significant tax implications. Consult your CPA regarding exemptions to the general rule of tax liability for foreclosures. Christopher is not a CPA and cannot give tax advice, but he will flag the questions you should bring to your CPA. The IRS publishes answers to common questions about bankruptcy, foreclosure, and related tax issues at irs.gov.

Eligibility for Chapter 13 Discharge

You are not eligible for a Chapter 13 discharge if you received a Chapter 7 discharge in a case filed within 4 years of the Chapter 13 filing, or received a Chapter 13 discharge in a case filed within 2 years of the Chapter 13 filing.

Converting Between Chapter 7 and Chapter 13

It is possible to convert from Chapter 7 to Chapter 13 and vice versa. However, there are rules and strategic factors to consider. Conversion From Chapter 7 to Chapter 13 Converting from Chapter 7 to Chapter 13 is generally permitted so long as the Motion to Convert is made in good faith and does not violate bankruptcy rules. Bad Faith — A Motion to Convert to Chapter 13 that is motivated by an asset the debtor deliberately concealed and did not list on the bankruptcy petition would be in bad faith and should not be permitted. Factors Outside the Debtor's Control — A debtor who has a relative die within 180 days of filing is required to report the eligibility to receive the inheritance to Christopher, who is required to report it to the Trustee. So if a debtor's wealthy grandmother died right after the debtor attended the 341 Meeting and the debtor became eligible for an inheritance of something sentimental — jewelry, art, or antiques — the debtor may wish to convert to Chapter 13 and pay creditors over 5 years what they would have received if the sentimental gifts had been sold. Conversion From Chapter 13 to Chapter 7 You cannot convert your Chapter 13 case to Chapter 7 unless you were eligible for Chapter 7 on the day you filed. A Motion to Dismiss your Chapter 13 followed by a re-filing under Chapter 7 would be required if you became eligible for Chapter 7 while you are in Chapter 13. Previous Filing — A debtor who had a previous Chapter 7 discharge 5 years ago will become eligible for another Chapter 7 discharge 3 years into a 5-year Chapter 13 plan. Eight full years from the filing date of the first Chapter 7 case must have passed before a new case may be filed. That debtor may choose to dismiss the Chapter 13 and refile under Chapter 7 in order to avoid making 2 more years of payments, assuming the debtor is income-eligible to do so. Tax Debt — A debtor who is income-eligible for Chapter 7 when the Chapter 13 petition is filed and who owes the IRS for debt that is only a year old may choose to convert to Chapter 7 two years into the plan. Tax debt can become dischargeable after 3 years, so long as tax returns are timely filed, taxes are timely paid, and other conditions are met.

Chances of Completing the Plan — Realistic Expectations

You should know going into Chapter 13 that about 90% of plans are not completed. The vast majority are dismissed or converted to Chapter 7. Chapter 13 filings have historically been about 30% of total filings — so on average, of 100 bankruptcy cases, 70 will be Chapter 7 and 30 will be Chapter 13. Of those 30 cases, only about 3 will complete their plans. Washington State is in the top 5 states for per-case yields to all creditors. That means the Chapter 13 Trustee is squeezing as much money out of debtors as possible without regard for whether doing so decreases the likelihood of plan completion. This is accomplished primarily in four ways: 1. Mortgage Arrears — must be caught up by including the regular payment plus the arrears (not just the arrears) divided by 60 months in the plan. The Trustee takes a 5% fee on the whole amount. Debtors should catch up their mortgages before filing if possible. 2. Vehicle Payments — all vehicle payments in Chapter 13 must be made through the plan regardless of whether payments are current. This requires debtors to pay an additional 5% on their regular car payment to cover the Trustee's fee, and causes late vehicle payments during the 3–5 months prior to plan confirmation. In Christopher's view, debtors should be allowed to pay vehicle payments outside the plan if they choose to do so — but the Bankruptcy Court disagrees. 3. Student Loans — non-dischargeable student loans are sometimes required to be paid in full within 5 years, increasing the payment amount and adding the 5% Trustee's fee. In Christopher's view, debtors should be allowed to pay non-dischargeable student loans outside the plan. 4. Tax Refunds — all tax refunds in excess of $1,500 are committed to the plan even though debtors are paying 100% of disposable income into the plan. In Christopher's view, debtors should be allowed to claim tax refunds as exempt if the income from which the taxes were paid was exempt. To make matters worse, you can expect objections and Motions to Dismiss your case from the Chapter 13 Trustee's office even when you are proposing to pay 100% to creditors. Debtors should be assisted and encouraged by the Trustee in the completion of their Chapter 13 plans — the Bankruptcy Code requires this, and the Trustee is being paid 5% on all distributions, even those that are totally unnecessary. That is not what happens. Chapter 13 is a battle to get your basic rights as a debtor to information you need about your case, and a struggle against objections made before debtors even have a chance to respond. This results in enormous inefficiency as well as ineffectiveness. The Chapter 13 Judges are primarily former partners in large law firms that represented creditors. So when a debtor goes to a hearing in Chapter 13, there are effectively three creditor lawyers in the room — the Trustee, the Judge, and counsel for the creditor — and the debtor's counsel. Many provisions of the Bankruptcy Code were drafted after substantial lobbying by creditors. Bankruptcy Judges have very little discretion; they cannot even waive the credit counseling requirement. Chapter 13 is much more of a last resort than Chapter 7 — at least in Chapter 7 you have a very high probability of obtaining the discharge you seek. Chapter 13 discharges are so relatively rare that debtors should have realistic expectations about the likely dismissal of their case before completion, which may or may not result in refiling under Chapter 7 depending upon eligibility.

Your Duty to Review the Petition

YOU MUST READ AND UNDERSTAND THE BANKRUPTCY PETITION, AND NOTIFY CHRISTOPHER OF ANY ERRORS OR OMISSIONS, BEFORE YOU SIGN IT AND IT IS FILED. FAILURE TO DO SO IS AN UNCONSCIONABLE BREACH OF YOUR DUTIES AS A DEBTOR. Please read the Chapter 7 section of this website for the Top 10 Bankruptcy Pitfalls, debt-to-income ratio, and exemption information. Below is information specific to Chapter 13.

Top 10 Chapter 13 Pitfalls

Please also read the Chapter 7 section of this website for the Top 10 Bankruptcy Pitfalls, debt-to-income ratio, and exemption information. The following pitfalls are specific to Chapter 13. 1. Failure to Make or Catch Up Plan Payments The first full payment is due 30 days after filing. A wage order issued by the Trustee to your employer is required — your employer sends the money to the Trustee, who sends it to your creditors once your plan is confirmed. If you are paid twice per month, the wage order must start on your next paycheck after filing. If it does not start then, direct payment is required. You must catch up missed payments or your plan will be dismissed. Track your payments at the National Data Center (www.ndc.org). Make payments to the Chapter 13 Trustee at www.seattlech13.com/info/make_pay.php. WARNING: You will fall behind on your car payment in Chapter 13 if attorney's fees are included in the plan — you must catch up immediately if your case is dismissed. 2. Failure to Budget Chapter 13 is designed to take 100% of your disposable income for 5 years. It is very difficult to live on just necessities for that long. Budgeting is vital to success. See the links below for budgeting resources: Amazon's Top 100 Most Wished-For Personal Finance Books, and Mint — a free tool for downloading and analyzing your banking information. 3. Using Credit Do not use credit, even if a creditor sends you a pre-approved credit card. A condition of being in Chapter 13 is that you not use credit without a Court Order. Obtaining the Order requires filing a Motion and setting it for hearing. 4. Not Staying Current on Taxes Your Chapter 13 plan only includes debts that existed on the day you filed. If you under-withhold and owe taxes while in Chapter 13, the IRS has cause to move to dismiss your plan. Dismissal requires refiling to include the new tax debt and starts the 60-month clock over. If your plan is dismissed in month 40 and you refile, you will not receive your discharge until 100 months from your original filing date. 5. Not Sending the Trustee Tax Refunds Above $1,500 Any tax refund above $1,500 is non-exempt in Chapter 13 and must be voluntarily sent to the Trustee. Failure to do so could result in dismissal. 6. Not Sending the Trustee a Copy of Your Tax Return Refusal to send the Trustee tax returns for each year you are in the plan is cause for a Motion to Dismiss. Send returns to Christopher first — he will submit them to the Trustee. When you receive a letter from the Trustee directing you to do something, send Christopher the letter and whatever was requested. Do not communicate with the Trustee's office directly — contact Christopher first. 7. Failure to Report Increased Income If you are paying less than 100% to creditors and your income increases during Chapter 13, your disposable income and required plan payment will likely increase as well. Failure to timely report a raise could cause you to fall behind on plan payments and result in dismissal. 8. Buying a Car It is possible to buy a car while in Chapter 13, but strict requirements must be met: (1) monthly payment of $400 or less; (2) purchase price before trade-in of $15,000 or less; (3) interest of 20% or less. Download the Car Purchase Request Form (PDF) below, complete it, and send it to Christopher — he will submit it to the Trustee on your behalf. Use the Bankrate loan calculator (link below) to calculate your monthly payment before submitting. 9. Failure to Pay Child Support You are required to remain current on child support in Chapter 13. The Trustee sends letters to the recipient to verify compliance. Failure to remain current could result in dismissal and refiling with the arrears added to the new plan — plus the 5% Trustee's fee on the whole amount. 10. Post-Petition HOA Dues If you own a condominium or home with HOA dues and the property is being surrendered in your bankruptcy, your personal liability for dues that accrue after filing continues until title leaves your name. Banks sometimes take 5 years or more to foreclose and often will not accept a Deed in Lieu of Foreclosure. This means the HOA can sue you for dues that accrued during your entire bankruptcy — potentially triggering a garnishment of 25% of your net pay, a Motion to Dismiss, and refiling for another 5-year plan, putting you in Chapter 13 for 9 years. This is an unfair result that has yet to be remedied by the Washington State Legislature. If you are affected by this issue, Christopher urges you to contact your representatives in the State Legislature and ask them to pass a law correcting this injustice.