Some Frequently Asked Questions

Your Quick Guide to Financial Clarity

• If I file bankruptcy, is my life ruined, am I a failure?

  First, this is a compound question (stupid legal humor, feel free to ignore it), BUT the answer to BOTH these questions is a resounding NO! It is tough out there, for all of us, and in my opinion, our “system” is broken in many ways. For instance, health care. Many of my clients, unfortunately, had an accident or medical emergency, and they are strapped with insurmountable debt from it, even with having insurance. Divorce, a pandemic, a business decision, scams, the list goes on, the common denominator being LIFE. We all go through it and we all struggle at times. Bankruptcy can be the most responsible course of action. For real. You WILL bounce back, and bounce back stronger, I’ve seen it time and time again with my clients, in fact, every damn time. No lives are “ruined”, instead quite the opposite, lives are saved, reinvigorated, reborn. The “fresh start” bankruptcy affords debtors is a life-saver. You will move forward, you will sleep better, you will thrive. You are NOT a failure, you are a survivor, soon to be a phoenix rising from the ashes. Perhaps I sound trite in saying this but I wholeheartedly believe this and know it to be the truth.

• Will I lose everything if I file for bankruptcy?

  Another resounding NO! Bankruptcy is not going to leave you naked on the street. You get exemptions in bankruptcy. Bankruptcy is a Federal process of law but exemptions are determined by the States. Therefore, there are State of Colorado exemptions available for debtors filing for bankruptcy. Household goods, clothing, electronics … personal property like this is typically never an issue, meaning that you will KEEP all of your property so long as it doesn’t exceed a certain amount of value (set by Colorado law). An important exemption is the Homestead Exemption. The homestead exemption is applicable if you own a home. If you have equity in your home (your home is worth more than you owe on it), and it is your primary personal residence, as of January 2024, up to $250,000 is exempt, or free from the reach of your creditors in a bankruptcy. Furthermore, if you are 60 years of age or older, or disabled, this exemption goes even higher, up to $350,000 is exempt. This is awesome. This means that in most cases if you own a home and file for bankruptcy protection, you will keep your home AND all equity associated with it. WIN WIN.

• Will I ever get credit again, how fast am I able to start rebuilding credit, what if I rent, will I get a rental again?

  All good questions. The answers are yes, soon enough, and yes. You can always get credit, it’s just a matter of the terms. For example, some lenders do car loans for folks while in the middle of bankruptcy, or even immediately after receiving your discharge. The interest rate is not the best but the option is there. The longer out from a discharge, the better the terms. If you’re a tenant, and you’ve got a lease ending soon and you’re worried about a future landlord renting to you, don’t fret, landlords (especially private ones) typically favor tenants fresh out of a bankruptcy. Debtors with a discharge don’t owe anyone else anything since they just filed bankruptcy so landlords feel confident they’ll get paid. The most important thing landlords look at in terms of prospective tenants is employment/income – the ability to pay rent going forward. If you’ve got that, you’re most likely good to go in a landlord’s eyes.

• Will ALL of my debt go bye-bye? Can I pick and choose certain accounts I'd like to keep following my bankruptcy filing?

  The way bankruptcy law reads is that all debt that is dischargeable in bankruptcy shall be discharged. You won’t get a line item court order indicating what all has been discharged, and what has not. The only debts that are non-dischargeable in bankruptcy are debts like domestic support obligations (child support and/or maintenance owed); court fines and penalties, including restitution (so if you owe money to a Court or a victim in a criminal case for instance, those types of debts are non-dischargeable), student loan debt is still non-dischargeable, though I think this will ultimately change, but who knows when, and for the most part taxes, though past due income taxes CAN sometimes be dischargeable in bankruptcy. But, most unsecured debt like credit cards, personal loans, medical bills, etc., ALL dischargeable.

• I have a car and would like to keep it, is this possible?

  YES. If you have a loan against a vehicle, this is an example of a secured debt. Other secured debts can be furniture, jewelry, etc. Anything that is tied to collateral or an asset. When you bought the car, you signed a promissory note, the promise to pay back the money borrowed. You are personally liable for it, money-wise. The lender also has a lien against the vehicle, the collateral. This is what gives lenders of secured debt the ability to repossess the property. When a debtor files bankruptcy, the promissory note or personal liability a debtor has to the lender is gone, you are no longer personally liable for the debt BUT the lender still has a lien against the property, so the lender will want to know what the debtor wants to do with the collateral. You want to keep the car? Surrender the car? In these instances, what the lender really wants is for you to sign what’s called a reaffirmation agreement. This type of agreement puts you back on the hook (personally liable again) for the money piece of the debt. We will discuss your options with this and I’ll explain it in further detail when we meet but the bottom line is that yes, you can keep your car, there’s ways to do it so it’s best for you going forward.

• What do I do if I have a business and a lot of the debt I have is due to the business?

  In a Chapter 7 bankruptcy case, a discharge is only available to individual debtors, not to partnerships or corporations. What this means is that a business does not receive a discharge. Oftentimes, a lot of the debt is personally guaranteed by the debtor (personally liable for the debt), individually, so by filing bankruptcy, this debt is discharged concerning you, individually (no longer personal liable on the debt) BUT the business may still be liable for the debt. Then the question becomes whether or not the business has assets and if it does and will no longer be operational going forward, the way to “close” a business is through State law via what’s called a “dissolution”. This is done through the Secretary of State. The important thing to know is that a business DOES NOT receive a discharge. So, you file individually to address the personal liability you may have through guarantees that you likely signed, and then decide whether or not to legally close/dissolve the business via State means.

• How long does this process take?

  Chapter 7 bankruptcies take approximately 3 months from filing to discharge. Chapter 13 bankruptcies can be either 3 or 5 years.

• What’s the difference between Chapter 7 and Chapter 13?

  Chapter 7 bankruptcy is termed the “liquidation bankruptcy”. It’s the quickest, least expensive filing and therefore the type of bankruptcy most people want to file. People file for Chapter 13 bankruptcy because they either have to or want to. There is a thing called the Means Test in bankruptcy. It’s basically a test/calculation performed to determine whether or not an individual qualifies to file for Chapter 7 bankruptcy protection, or is required to file a Chapter 13. Remember, a Chapter 13 is the type of bankruptcy in which a debtor goes into a payment plan with the Court and trustee and remits monthly payments to the Trustee for either 3 or 5 years. This is done via a Chapter 13 Plan. These monies paid into the Plan get distributed to creditors of the debtor based on the type of debt. For instance, past due income tax gets paid to the priority of credit card debt, or unsecured debt. The Means Test distilled is basically looking at income, expenses, household size, and some other factors and spitting out a number. There is this constructive bar set in the calculation and if the number spit out is below the bar, you can file Chapter 7, if it’s above the bar, you have to file Chapter 13. This is a very simplified explanation but one that we would go through in detail if you decide to file for bankruptcy protection. The other reason people file for Chapter 13 bankruptcy is if they have non-exempt assets they wish to keep. The most common example here is a home. If you won a home that has a lot of equity, specifically an amount that exceed the exemption limits, and you want to keep the home, you would likely file for Chapter 13 bankruptcy protection and pay the non-exempt portion of the property into the plan over 3 or 5 years. The tricky concept with this is that no creditor in a Chapter 13 can do any worse than that creditor would do in a Chapter 7. In a Chapter 7 bankruptcy, the liquidation bankruptcy, the Trustee is able to step into a debtor’s shoes and liquidate property that exceeds the exemption amounts and distribute that money to creditors. So, in a Chapter 7, the trustee could sell the house, pay off any mortgage on the house, pay the debtor the exemption amount ($250K or $350K), and then distribute what remains (the nonexempt money) to creditors. In a Chapter 13, the debtor keeps the house and just pays that non-exempt portion into the Plan.

• How long until these creditors and collection companies stop calling me?

  By law, they don’t need to stop until you actually file for bankruptcy protection. But once you do, it typically takes approximately 1-2 weeks for them to receive notice of your filing, and once they do, they are prohibited from contacting you directly. There is an operation of law that goes in place when a debtor files for bankruptcy protection called an automatic stay. Fancy legalese meaning that all creditor activity needs to stop. Whether it be garnishments, repossession, foreclosure, and even those pesky, harassing phone calls, STOP! From the point of filing until discharge, any and all creditor contact needs to go through the Trustee and Court and NOT directly to you. Creditors become very weary of this when a debtor files for bankruptcy protection because if they do continue to pursue collection directly they can be sanctioned by the Court for doing so.