Categories: BankruptcyNews

An Alternative To Bankruptcy In D.C.

Filing for bankruptcy in the District of Columbia isn’t any different than filing in another state. The bankruptcy process falls under federal law, not District of Columbia state law. But District of Columbia’s laws come into play too. They determine the property you can keep in your bankruptcy case. As of September 30, 2021, there were 1,615 bankruptcy filings in the District of Columbia, according to data from the Administrative Office of the U.S. Courts.

Bankruptcy Laws in The District of Columbia

Bankruptcy in the District of Columbia is governed by federal law and is handled by the United States Bankruptcy Court for the District of Columbia. However, there are certain aspects of bankruptcy that may be influenced by local laws and regulations. In the District of Columbia, bankruptcy cases are typically filed under Chapter 7 or Chapter 13 of the federal Bankruptcy Code. Chapter 7 bankruptcy is a liquidation process in which a debtor’s assets are sold and the proceeds are used to pay off creditors. Chapter 13 bankruptcy is a reorganization process in which a debtor’s debts are restructured, and the debtor is put on a payment plan to pay off creditors over a period of three to five years. Under federal bankruptcy law, certain debts cannot be discharged in bankruptcy, including most taxes, student loans, and child support payments. In addition, there are specific rules and procedures that must be followed in order to file for bankruptcy, including credit counseling requirements and means testing to determine eligibility for Chapter 7 bankruptcy.

Types of Business Bankruptcy and What You Need to Know

There are several types of bankruptcy for businesses, each with its own set of rules and requirements. Here is an overview of the most common types of bankruptcy for businesses:

Chapter 7 bankruptcy: This is also known as liquidation bankruptcy and is typically used by businesses that are no longer able to pay their debts. In a Chapter 7 bankruptcy, a court-appointed trustee sells the assets of the business to pay off creditors. Any remaining debts are then discharged, which means that the business is no longer responsible for them. However, not all debts can be discharged in Chapter 7, and some assets may be exempt from sale.
Chapter 11 bankruptcy: This is a reorganization bankruptcy typically used by businesses that want to continue operating while restructuring their debts. In a Chapter 11 bankruptcy, the business remains in control of its operations, but must develop and submit a plan to restructure its debts to the court. The plan must be approved by creditors and the court before it can be implemented. Chapter 11 bankruptcy can be a complex and expensive process, and is typically used by larger businesses.
Chapter 13 bankruptcy: While Chapter 13 is typically used by individuals, it may also be available to small businesses that are structured as sole proprietorships or partnerships. In a Chapter 13 bankruptcy, the business owner develops a repayment plan to pay off debts over a period of three to five years. The business is allowed to continue operating during this time, but must make regular payments to the court-appointed trustee to distribute to creditors.
Chapter 12 bankruptcy: This type of bankruptcy is specifically designed for family farmers and fishermen. It is similar to a Chapter 13 bankruptcy, but includes specific provisions for businesses in the agricultural and fishing industries.

Learn More about the 3 main types of bankruptcy

Are All Debts Discharged?

While filing for bankruptcy can help individuals eliminate many types of debt, there are certain debts that are not discharged, or forgiven, through bankruptcy proceedings. Some of the most common types of debts that are not discharged in bankruptcy include:

Student loans: In most cases, student loans are not dischargeable through bankruptcy. However, in some rare cases, individuals may be able to discharge their student loans if they can prove that paying them back would cause undue hardship.
Taxes: Debts owed to the government, such as taxes, are generally not dischargeable in bankruptcy. However, there may be some exceptions depending on the type of tax and the circumstances.
Child support and alimony: Debts owed for child support and alimony are not dischargeable through bankruptcy.
Debts from fraud or intentional wrongdoing: Debts that were incurred through fraud, embezzlement, or other intentional wrongdoing may not be dischargeable.
Fines and penalties: Debts owed for fines or penalties imposed by government agencies or courts are generally not dischargeable in bankruptcy.

About Your Credit Score and Future Loans

Filing for bankruptcy in the District of Columbia can have a significant impact on your credit score and ability to obtain future loans. When you file for bankruptcy, it is reflected on your credit report for up to 10 years. This can negatively affect your credit score and make it more difficult for you to obtain credit in the future. Lenders may see you as a higher risk borrower and may charge higher interest rates or deny you credit altogether.

Are Tax Debts Discharged?

Filing for bankruptcy in the District of Columbia can have different effects on tax debts depending on the type of tax debt and the bankruptcy chapter filed. If you file for Chapter 7 bankruptcy, most tax debts are not dischargeable unless they meet specific criteria. For income tax debts to be dischargeable, they must meet the following criteria:

The tax debt must be for income taxes only.
The tax return must have been due at least three years before filing for bankruptcy.
The tax return must have been filed at least two years before filing for bankruptcy.
The IRS must have assessed the tax debt at least 240 days before filing for bankruptcy.

If the tax debt meets these criteria, it may be dischargeable through Chapter 7 bankruptcy. However, if the tax debt does not meet these criteria or if it is for other types of taxes (such as payroll taxes), it may not be dischargeable. If you file for Chapter 13 bankruptcy, tax debts may be included in your repayment plan. Under the repayment plan, you may be able to pay off your tax debts over a period of three to five years, potentially at a reduced interest rate.

What About Your Assets?

Whether you will lose your home or car in bankruptcy in the District of Columbia depends on the type of bankruptcy you file and your specific circumstances. In a Chapter 7 bankruptcy, the bankruptcy trustee may sell your non-exempt assets to repay your creditors. However, you can protect certain assets, including your home and car, through exemptions. In the District of Columbia, you can use the federal exemptions or the District of Columbia exemptions. Both exemptions allow you to protect a certain amount of equity in your home and car. If you are current on your mortgage or car payments and can continue to make payments, you may be able to keep your home and car through bankruptcy by continuing to make your payments. If you are behind on your payments, the lender may be able to foreclose or repossess the property. In a Chapter 13 bankruptcy, you can keep your home and car as long as you can continue to make your mortgage and car payments.

Statute of Limitations for Collections in The District of Columbia

In the District of Columbia, the statute of limitations for collections depends on the type of debt. For written contracts, including credit card debt and personal loans, the statute of limitations is three years. This means that the creditor has three years from the date of the last payment or activity on the account to file a lawsuit against the debtor. For oral contracts, such as verbal agreements or agreements made over the phone, the statute of limitations is three years. For open-ended accounts, such as lines of credit or revolving credit accounts, the statute of limitations is three years from the date of the last activity or payment on the account. For judgments, the statute of limitations is twelve years.

Cons of Bankruptcy in The District of Columbia

There are several cons of filing for bankruptcy in the District of Columbia, including:

Damage to credit score: Filing for bankruptcy can have a significant negative impact on a person’s credit score, which can make it difficult to obtain credit in the future or result in higher interest rates.
Loss of assets: Depending on the type of bankruptcy filed, the debtor may be required to surrender certain assets in order to pay off creditors. This can include personal property, such as a car or home.
Public record: Bankruptcy filings are a matter of public record, which means that anyone can access the information. This can be embarrassing and may harm a person’s reputation.
Limited types of debt eliminated: Not all types of debt can be eliminated through bankruptcy, such as student loans, taxes, and child support payments.
Long-term consequences: Bankruptcy can have long-term consequences, such as difficulty obtaining loans, higher insurance rates, and difficulty renting an apartment or obtaining a job.
Cost: Filing for bankruptcy can be expensive, and legal fees can add up quickly. Additionally, bankruptcy can require a significant amount of time and effort to complete the required paperwork and attend court hearings.

Compare the Pros and Cons of Bankruptcy: Pros and Cons of Filing Bankruptcy

Why People Regret Filing Bankruptcy

There are several reasons why people may regret filing for bankruptcy, including:

Damage to credit score: Bankruptcy can have a significant negative impact on a person’s credit score, which can make it difficult to obtain credit in the future or result in higher interest rates. This can lead to difficulty obtaining loans, credit cards, or even renting an apartment.
Loss of assets: Depending on the type of bankruptcy filed, the debtor may be required to surrender certain assets in order to pay off creditors. This can include personal property, such as a car or home, which can be emotionally and financially devastating.
Public record: Bankruptcy filings are a matter of public record, which means that anyone can access the information. This can be embarrassing and may harm a person’s reputation.
Limited types of debt eliminated: Not all types of debt can be eliminated through bankruptcy, such as student loans, taxes, and child support payments.
Long-term consequences: Bankruptcy can have long-term consequences, such as difficulty obtaining loans, higher insurance rates, and difficulty renting an apartment or obtaining a job.
Emotional impact: Filing for bankruptcy can be emotionally taxing, and some people may feel a sense of shame or failure as a result.

What Are The Alternatives To Bankruptcy?

If you do not qualify for bankruptcy in the District of Columbia, there may be other options available to you to help address your debt issues. One of which is debt settlement. Debt settlement involves negotiating with creditors to settle debts for less than the full amount owed. There are some potential benefits to debt settlement over bankruptcy that may make it a more favorable option for some individuals.

No BK on your credit report: Filing for bankruptcy shows on your credit report for up to 10 years. On the other hand, debt settlement does not show as a bankruptcy.
Cost: Filing for bankruptcy can be expensive, with filing fees, attorney fees, and other costs adding up quickly.
Emotional Impact: People report horror stories of the negative emotional impact of BK.
With a bankruptcy for the rest of their life: Employers or lenders can ask if someone has filed BK for the rest of their life. It is much less likely to be asked if one ever used debt settlement to pay back an agreed to amount.
Control: With debt settlement, you may have more control over the process and negotiations with your creditors, whereas with bankruptcy, a court will make the final decision.
Less severe consequences: Filing for bankruptcy can have significant consequences, such as the liquidation of your assets, whereas debt settlement may allow you to negotiate a more manageable repayment plan while keeping your assets.

Bankruptcy vs. Debt Relief: What’s Right For You and How We May Be Able To Help

CuraDebt – An Alternative To Consider

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