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Oregon Bankruptcy Exemptions and Law
In the current environment, moneylenders are more aggressive than ever. For example, due to some recent legal changes, most mortgage banks can begin foreclosure proceedings after just one missed payment. After that initial missed payment, many of these banks stop accepting regular payments. So, the financial hole gets deeper every month.
Stopping Creditor Actions Through Bankruptcy
As outlined below, bankruptcy immediately stops foreclosure and other adverse creditor actions. Additionally, bankruptcy protects your house and other property from creditor seizure. Finally, some advanced bankruptcy options could make your house, car, and other secured assets easier to afford down the road.
An Oregon bankruptcy attorney can take steps to ensure that all creditors receive prompt notice of your filing. Attorneys also know how to make the law work for you, in areas like asset exemption and property valuation. Finally, an attorney can unlock advanced bankruptcy options that make your family's life a little easier.
Former Supreme Court Justice James Clark McReynolds wrote that bankruptcy “relieve[s] the honest debtor from the weight of oppressive indebtedness, and permit[s] him to start afresh free from the obligations and responsibilities consequent upon business misfortunes." In other words, bankruptcy gives a fresh start to people that need and deserve one.
Essential Principles in Bankruptcy
The automatic stay is an important component of bankruptcy's fresh start. Over the years, courts have watered down many consumer debt protections. But Section 362 of the Bankruptcy Code still immediately stops things like:
- Lien placement
- Wage garnishment
- Utility shutoff
Moreover, the automatic stay's strength lies not only in its initial application. Typically, creditors can only bypass the stay in limited situations, and if they can overcome a bankruptcy lawyer's counter-arguments.
Section 362 of the Bankruptcy Code spells immediate relief for distressed debtors. Bankruptcy's debt discharge provides longer-term relief. Most unsecured debts are dischargeable in bankruptcy. Examples include:
- Credit cards
- Medical bills
- SBA loans
- Payday loans
- Revolving debt accounts
Some unsecured debts, mostly child support, criminal fines, and spousal support, are not dischargeable in bankruptcy. A bankruptcy lawyer can address these issues in different proceedings. Others, like student loans and back taxes, are dischargeable in certain situations.
Secured debts, such as mortgage loans, are not dischargeable. However, a lawyer can often negotiate with creditors and obtain more favorable repayment terms. When you file bankruptcy you have negotiating power.
Types of Consumer Bankruptcy in Oregon
Since there are different types of debt, there are also different types of bankruptcy.
Chapter 7 eliminates unsecured debts in only a few months. After debtors file their voluntary petitions, the trustee (person who oversees the bankruptcy for the judge) verifies the debtor's identity and looks for evidence of bankruptcy fraud. If no red flags appear, the judge normally closes the case shortly after this meeting.
Chapter 13 gives debtors up to five years to repay past-due mortgage payments and other secured debt delinquency. The trustee helps the debtor set up an income-based repayment plan. Since the automatic stay remains in effect, as long as the plan meets minimum legal requirements, creditors must sit and wait for repayment. Once again, bankruptcy lets you dictate the terms.
Chapter 20 is the informal term for another option. This combines elements of Chapter 7 and Chapter 13 into one continuous proceeding. Here's an example:
Assume Christian files a pro se Chapter 7 hoping to eliminate old tax debt. But he does not qualify under the complicated discharge rules. Normally, a lawyer can file a Chapter 13 immediately after a judge closes Christian's pro se bankruptcy. He would not be eligible for a discharge. But he does not want or need a discharge. Christian simply needs time to pay off his tax debt. Because of the automatic stay, Chapter 13 gives him that time.
According to Justice McReynolds, you are eligible for bankruptcy if you are an honest yet unfortunate person. The requirements are a bit more involved, but if you are an honest debtor you probably have options.
Chapter 7 Eligibility
In 2005, lawmakers added the means test requirement to Chapter 7 bankruptcy. Your annual household income must be below the state average. As of November 1, 2020, that figure was $100,533 for a family of four. If your income is substantially higher you probably do not need to file Chapter 7. A bankruptcy lawyer can help you with some non-bankruptcy debt relief options.
There may be some regional variations. The cost of living is much higher in certain parts of Oregon than in other parts.
You must also be prepared for some informal Chapter 7 qualifications. For example, during the aforementioned trustee review, the trustee often questions your need to file Chapter 7 if your monthly income is higher than your monthly expenses. These questions could lead to a fraud inquiry.
Chapter 13 Eligibility
The amount of debt is irrelevant in Chapter 7. But a debt ceiling applies in Chapter 13 cases. Your unsecured debts cannot exceed $400,000. Your secured debts cannot exceed $1.3 million. These totals include current and past due amounts. So, if you recently bought a very large house, even if you aren't behind on payments, you might be ineligible for Chapter 13.
All consumer bankruptcy debtors must complete a pre-filing debt counseling course and a post-filing credit management class. These inexpensive and brief courses are typically available online.
Chapter 13 also has some informal qualifications your lawyer can let you know of. For example, you must have sufficient monthly disposable income to fund a debt consolidation payment. If this payment is an issue, alternatives are usually available, such as a plan modification, a Chapter 7 conversion, or a hardship discharge.
When players file bankruptcy in Monopoly, they lose their property. That's because there are no property protection rules in this board game. In the real world, either state bankruptcy exemptions or federal bankruptcy exemptions protect your assets in Oregon. You choose which set to apply.
Nonexempt property legally belongs to the bankruptcy estate, which the trustee controls. The trustee's right to liquidate such property is subject to the informal exemptions, as discussed below.
Formal Property Protections
Most people work very hard to acquire certain assets. Oregon's state exemptions, which you may use if you have lived in the state for more than two years, are some of the broadest ones in the country. Some highlights include:
- Homestead exemption: In most cases, state law allows bankruptcy filers to protect up to $40,000 of home equity. In other words, if you have less equity than that, the trustee cannot seize your home, regardless of the circumstances. Mortgage loans are amortized. Thus, for about the first half of the repayment period, your loan payments go almost exclusively to interest instead of principal, meaning you likely have little equity in your home.
- Motor vehicle exemption: These same principles apply to Oregon's $3,000 motor vehicle equity protection. Furthermore, most cars and trucks rapidly depreciate. Used vehicles have almost no financial value, especially if they need minor repairs.
- Current wages: The law protects up to 75 percent of earned but unpaid wages. Additionally, as mentioned above, bankruptcy stops wage garnishment. So, filing bankruptcy does not compromise your ability to pay monthly bills.
- Personal property: Up to $7,000 in furniture, electronics, appliances, clothing, jewelry, and other such items are exempt. These items are subject to the as-is cash value rule. Michael might have paid several thousand dollars for his state-of-the-art TV. But that TV might only be worth a few hundred in a garage sale (the as-is cash value).
- Retirement accounts: IRAs, 401(ks), and other such accounts are exempt. So are pension plans and other defined benefit accounts. On a related note, Social Security and other government benefits are exempt as well. So are most workers' compensation and personal injury awards.
- Wildcard: Oregon law allows bankruptcy filers to protect up to $400 of nonexempt property. Examples include money in a savings account or a small vacation timeshare.
Married couples can double most of these exemption amounts. They cannot double the homestead or household goods exemptions.
Oregon is one of the states that allows debtors to choose state or federal exemptions. Highlights of the federal bankruptcy exemptions include:
- Home equity ($25,150)
- Motor vehicle equity ($4,000)
- Personal property ($18,000)
- Life insurance equity or payments ($13.400)
- Public benefits (100 percent exempt)
- Retirement accounts ($1.3 million)
- Personal injury awards ($25,150)
- Wildcard exemption (up to $13,900)
Only an Oregon bankruptcy lawyer can give you solid advice as to which set of exemptions is best for you. As a rule of thumb, most homeowners elect the state exemptions and most renters choose the federal exemptions.
Informal Bankruptcy Exemptions
Like the informal bankruptcy qualifications and other informal bankruptcy matters, the informal exemptions vary in different jurisdictions. They usually involve an obscure bankruptcy rule known as the best interests of creditors requirement:
Assume Ann has a small motorboat. She cannot protect it under the formal exemptions. So, the trustee makes plans to seize and sell it. The trustee discovers the boat, which is worth about $1,000, needs about $500 in repairs. Furthermore, the trustee estimates storage and other sales costs at $500.
The trustee might be unable to seize Ann's boat. Given the numbers, the item's seizure and sale would generate little or nothing for creditors. So, the move would not be in their best financial interests.
In many cases, the property exemptions are just the beginning. Some advanced options, like lien stripping, are often available.
Assume Morgan used 80/20 financing to buy a $500,000 home. There is a $300,000 senior lien and a $200,000 junior lien. Largely due to market conditions, the value of Morgan's house has dropped to $400,000.
The home's value is not large enough to fully secure the $200,000 junior lien. So, a bankruptcy judge could discharge the unsecured portion. That partial discharge could save Morgan thousands of dollars a year.
Note: State laws are always subject to change through the passage of new legislation, rulings in the higher courts (including federal decisions), ballot initiatives, and other means. While we strive to provide the most current information available, please consult an attorney or conduct your own legal research to verify the state law(s) you are researching.