How to Qualify for Bankruptcy in Washington State: Eligibility Criteria

How to Qualify for Bankruptcy in Washington State: Eligibility Criteria

Declaring bankruptcy can be a significant financial decision, and understanding the eligibility criteria is essential for residents of Washington State. This article outlines the steps and requirements necessary to qualify for bankruptcy in Washington State, providing clarity on both Chapter 7 and Chapter 13 bankruptcy options.

Types of Bankruptcy in Washington State

In Washington State, individuals primarily qualify for two types of bankruptcy: Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also known as "liquidation bankruptcy," is designed for individuals with few assets and significant unsecured debts. To qualify for Chapter 7 bankruptcy, you must meet the following criteria:

  • Means Test: You must pass the means test, which determines if your income is below the median income level for a household of your size in Washington. This is calculated using your average monthly income over the past six months.
  • Income Limit: If your income exceeds the state’s median income, you might still qualify by demonstrating that your disposable income is insufficient to repay your debts.
  • Credit Counseling: Before filing, you must complete a credit counseling session from an approved agency within 180 days of filing your petition.
  • No Previous Bankruptcy Discharges: You cannot have received a discharge in a Chapter 7 case in the last eight years or in a Chapter 13 case in the last six years.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, often referred to as a reorganization bankruptcy, is suitable for individuals with regular income who want to keep their property and pay off debts over time. The eligibility criteria for Chapter 13 are somewhat different:

  • Regular Income: You must have a stable and regular income, which can include wages, self-employment income, rental income, or pension payments.
  • Debt Limits: Your secured debts must be less than $1,257,850, and your unsecured debts must be less than $419,275 (as of 2023). These limits are adjusted periodically, so it's crucial to check for any updates.
  • Credit Counseling: Similar to Chapter 7, you must complete a credit counseling course from an approved agency before filing.
  • Good Faith Filing: You need to show that your bankruptcy filing is in good faith and not intended to defraud creditors.

Additional Considerations

Aside from the primary eligibility criteria for Chapter 7 and Chapter 13 bankruptcies, there are additional aspects to consider:

  • Asset Exemptions: Washington has specific exemptions that allow certain assets to be protected during bankruptcy, including your primary home, vehicle, and retirement accounts.
  • Impact on Credit: Filing for bankruptcy will have a significant impact on your credit score, lasting up to 10 years for Chapter 7 and 7 years for Chapter 13.

Conclusion

Qualifying for bankruptcy in Washington State requires meeting specific eligibility criteria that vary between Chapter 7 and Chapter 13. If you find yourself overwhelmed by debt, understanding these requirements is crucial in choosing the right path for your financial situation. It is often advisable to consult with a qualified bankruptcy attorney to navigate the complexities of the process effectively.